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Energy ETFs Set to Soar as Oil Price Rises

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Oil price jumped following political instability in the Middle East and North Africa that halted output and exports from key OPEC producers — Libya and Iraq. Crude oil futures climbed as much as 2% to $59.73 per barrel while Brent advanced as much as 1.8% to $66 per barrel.

The two large crude production bases in Libya have been shut down amid a military blockade, leading to supply disruption. A blockage of oil exports at Libya’s ports is expected to cut the country’s output by about 800,000 barrels a day. The National Oil Corporation warned that the stoppages could cut more than half of the nation’s crude output. It estimated that Libya’s production will be limited to about 72,000 barrels per day — the lowest level since August 2011 — once its storage tanks are full. Libya has been producing around 1.2 million barrels per day.

Meanwhile, Iraq temporarily stopped work in an oil field on Jan 19 and supply from a second production site is at risk as widespread unrest escalated in the OPEC’s second-biggest producer. The International Energy Agency said last week that supplies from Iraq are “potentially vulnerable” due to rising political risks in the country and the broader region (read: Bet on Oil Surge With These Leveraged ETFs).

Given this, we have highlighted five energy ETFs that could see some gains at least in the near term. However, these have a Zacks Rank #4 (Sell) or 5 (Strong Sell). Please note that our ranking system takes into account the asset class outlook, which was negative for energy and hence most of the ETFs in that space have a #4 or 5 Zacks Rank.

Energy Select Sector SPDR (XLE - Free Report)

This is the largest and most popular ETF in the energy space with AUM of $10.8 billion and average daily volume of more than 14.7 million shares per day. Expense ratio comes in at 0.13%. The fund follows the Energy Select Sector Index and holds 28 securities in its basket (read: Can Energy ETFs Rebound as China Promises Ramped-up Purchases?).

SPDR S&P Oil & Gas Exploration & Production ETF (XOP - Free Report)

This fund provides exposure to oil and gas exploration companies by tracking the S&P Oil & Gas Exploration & Production Select Industry Index. It has amassed $10.8 billion and holds 57 securities in its basket. The product charges 35 bps in annual fees and trades in average volume of 28.9 million shares per day.

VanEck Vectors Oil Services ETF (OIH - Free Report)

This fund tracks the MVIS U.S. Listed Oil Services 25 Index, which offers exposure to companies involved in oil services to the upstream oil sector, including oil equipment, oil services or oil drilling. Holding 25 stocks in its basket, it has amassed $668.6 million and charges 35 bps in annual fees. Volume is heavy, exchanging 10 million shares in hand per day.

SPDR S&P Oil & Gas Equipment & Services ETF (XES - Free Report)

This fund tracks the S&P Oil & Gas Equipment & Services Select Industry Index, which measures the performance of the companies engaged in the oil and gas equipment and services industry. It holds 31 stocks in its basket with AUM of $168.8 million. It trades in average daily volume of 1.5 million shares a day and charges 35 bps in fees per year from investors (read: ETFs to Gain & Lose From Higher Oil Price).


iShares U.S. Oil Equipment & Services ETF (IEZ - Free Report)

With AUM of $83.2 million, this ETF offers exposure to U.S. companies that provide equipment and services for oil exploration and extraction by tracking the Dow Jones U.S. Select Oil Equipment & Services Index. It holds 31 securities in its basket and charges 42 bps in fees per year. The product sees moderate average daily volume of 72,000 shares.

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