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In this episode of ETF Spotlight, I speak with Stacey Morris, head of energy research at VettaFi, about oil and energy ETFs, which are among the best performing areas of the market this year.
The Middle East conflict has severely disrupted global energy markets, with Iran restricting flows through the Strait of Hormuz, a critical corridor for roughly 20% of global oil exports.
Brent crude, which is a global benchmark, soared 63% in March, whereas WTI jumped about 51%. We discuss the difference between the two popular crude benchmarks and why WTI usually trades at a discount to Brent crude.
Some regional crude benchmarks have hit record highs, and prices for physical deliveries have risen even further. While the US is somewhat insulated from the oil shock thanks to the shale boom, many Asian and European economies that rely heavily on imported energy are already feeling a lot of pain.
US consumers are more impacted by soaring prices for refined products like gasoline, diesel, or jet fuel. The average price of gasoline in the US has now topped $4 a gallon. The surge in diesel, which is used by trucks and freight trains, will impact food prices.
Energy was the best performing sector in the first quarter, up about 37%. These stocks and ETFs had actually done quite well even before the war started as traders were bearish on oil heading into the year. They benefited from better than feared oil prices, as well as developments in Venezuela and rotation out of mega cap tech stocks.
ETFs like the State Street SPDR S&P Oil & Gas Exploration & Production ETF ((XOP - Free Report) ) and VanEck Oil Services ETF ((OIH - Free Report) ) are now up more than 40% year to date and have outperformed the broader State Street Energy Select Sector SPDR ETF ((XLE - Free Report) ).
With the recent rally, Exxon Mobil ((XOM - Free Report) ) is now trading at a forward price to earnings ratio of about 20X, and has topped that of AI darling NVIDIA ((NVDA - Free Report) ) twice this year, per the WSJ. Should investors buy these stocks and ETFs after these gains?
Energy stocks get a lot of attention whenever there is some sort of energy crisis, but investors are usually under allocated to them. Should they be used as a hedge against any oil shock, an inflation hedge, for diversification, or for the attractive dividend yields?
Tune in to the podcast to learn more.
Be sure to look out for the next edition of ETF Spotlight, and remember to subscribe!
If you have any comments or questions, please email podcast@zacks.com
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Are Energy Stocks and ETFs Still a Buy After the Rally?
Podcast@Zacks.com