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5 Reasons Why Oil Saw the Best January: 5 ETF Winners

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Crude oil prices have been on the rise since the start of 2019, buoyed by a fresh output cut decision by OPEC and Russia for the first six months of the year, U.S. sanctions against Venezuela on political grounds and hopes of a U.S.-Sino trade truce. All these led oil to about 18% higher in January and helped the liquid commodity see its best January on record (read: Top ETF Stories of January).

Inside the Drivers

Fresh Output Cut by OPEC+

Early last December, OPEC and Russia reached an agreement to cut output by 1.2 million barrels a day to take care of the supply glut and boost prices. Under the deal, OPEC and Russia will cut 800,000 bpd and other top non-OPEC oil producers will be responsible for the rest.

The fresh output cut deal is applicable for the first six months of 2019, with a review scheduled for April. The group has used October output levels as a reference point for cuts. Iran got an exemption from the cuts as it is already facing U.S. sanctions (read: Is Fresh OPEC+ Output Cut Enough to Boost Oil & Energy ETFs?).

Venezuela Sanctions

On Jan 28, the Trump administration imposed sweeping sanctions against Venezuelan state-owned oil firm Petróleos de Venezuela, S.A. Oil cargoes from Venezuela are now up in the air as U.S. blocks payments. PDVSA makes up nearly all of Venezuela’s exports. And U.S. sanctions came in response to the reelection of socialist President Nicolas Maduro, a vote broadly viewed as a sham (read: US Sanctions Against Venezuela? ETFs to Top & Flop).

Dovish Fed Comments

Investors should note that the Fed has given signs of adopting a dovish stance on rate hikes this year. Global growth worries and subdued inflation mainly led the Fed to take up a dovish tone. This in turn weighed on the greenback and boosted broad-based commodity ETFs as these are mostly priced-in the U.S. dollar. Moreover, an easy money policy would boost consumer spending and demand for more oil.

Global Output on Decline?

OPEC’s output fell by 890,000 bpd in January, according to a Reuters survey, the largest monthly drop since early 2017. Apart from Iraq, the cartel is appeared to be diligently following the production curb agenda. U.S. shale production is also on the decline. Though output growth is still expected to be positive this year, the increase could be the minimum in years.

Plus, Iran sanctions waivers are set to end in May, and the United States looks to further reduce Iranian oil exports. Libya has seen output loss in December, per oilprice.com.

U.S.-Sino Trade Optimism

The month of Januarywas all about U.S.-China trade optimism. Both parties met on Jan 30 for trade negotiations. China's trade delegation claimed to have "important progress" in the latest round of talks with the Unite States, per China's state media reports, quoted on bbc.com.

Also, there are news that the two sides are considering a meeting in Vietnam on Feb 27 and 28 and are striving to reach a resolution on the trade front. If a trade deal is reached, global growth worries will backtrack to a large extent and demand for oil will rise (read: U.S.-China Trade Talks Begin: 5 Safe ETFs to Follow).

Top-Performing Energy ETFs & Stocks

Against this backdrop, we highlight five top-performing oil/energy ETFs and stocks year to date (as of Feb 1, 2019).

ETF Winners

SPDR S&P Oil & Gas Equipment & Services ETF (XES - Free Report) – Up 25.1%

Invesco Dynamic Oil & Gas Services ETF (PXJ - Free Report) – Up 22.8%

VanEck Vectors Oil Services ETF (OIH - Free Report) – Up 22.7%

iShares US Oil Equipment & Services ETF (IEZ - Free Report) – Up 22.3%

United States Oil (USO - Free Report) – Up 20.4%

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