Oil was the most volatile commodity with wild swings in the second quarter. Price of oil collapsed to below zero (to negative $40) on Apr 20 for the first time ever as the economic turmoil caused by the coronavirus pandemic has resulted in crashing demand and rising stockpiles (read: 5 Sector ETFs Beating the Market in Q2).
However, oil made the greatest comeback in history in the wake of production cuts by major oil producers and an uptick in demand with easing lockdowns measures. Oil producers have started scaling back their production at record levels. The most notable development comes from OPEC, the 14-nation organization, and its allies that have agreed to extend historic production cuts of 9 .7 million barrels per day (about 10% of global supply) by another month, through the end of July.
Additionally, the stockpile is declining slowly, easing the storage crisis. The International Energy Agency (IEA) forecasts lower global stockpiles in the second half of 2020, even as worries remain over a second surge in coronavirus infections in the coming months. It expects crude inventories to fall by about 5.5 million barrels per day in the second half of this year.
On the other hand, demand for oil has been recovering across the world as pandemic-forced lockdowns have been lifted. Most notably, oil demand in China, the second-largest market in the world accounting for 15% of the world’s oil demand, is returning to pre-pandemic levels. The upbeat U.S. job report boosted demand for crude. For 2020, the IEA now expects global crude demand to fall by 8.6 million barrels a day versus its April forecast of a decline of 9.3 million barrels. Russia’s Energy Minister Alexander Novak said that crude oil demand could recover to levels last seen before the coronavirus pandemic sometime next year.
Given the improving demand/supply dynamics, crude oil returned to $40 per barrel lately after plunging into negative territory in April. In fact, oil price registered its best month in history, climbing about 88% in May. As a result, the energy sector enjoyed a huge surge. We have highlighted five ETFs & stocks that gained the most in the second quarter and should continue to head higher with the rise in oil price (read: Oil Back to $40 Level: ETFs to Gain or Lose).
First Trust ISE-Revere Natural Gas Index Fund (FCG - Free Report) – Up 95.2%
This fund offers exposure to U.S. stocks that derive a substantial portion of their revenues from the exploration and production of natural gas. It follows the ISE-REVERE Natural Gas Index and holds 34 stocks in its basket. The fund has amassed $92.8 million in its asset base while charging 60 bps in annual fees. Volume is good with 1.3 million shares exchanged per day on average. The product has a Zacks ETF Rank #3 (Hold) with a High risk outlook (read: 5 ETFs That Outshined During 100 Days of Coronavirus Pandemic).
InfraCap MLP ETF (AMZA - Free Report) – Up 93.7%
This is an actively managed ETF providing exposure to midstream master limited partnerships (MLPs) with an emphasis on high current income. Holding 44 stocks in its basket, the fund is unpopular and illiquid in the MLP space with AUM of $131.8 million and average daily volume of 114,000 shares. The product has higher expense ratio of 2.41%.
First Trust Energy AlphaDEX Fund (FXN - Free Report) – Up 75.9%
This ETF follows the StrataQuant Energy Index, which is a modified equal-dollar weighted index designed by the AMEX to objectively identify and select stocks from the Russell 1000 Index that may generate positive alpha relative to traditional passive style indices through the use of the AlphaDEX screening methodology. It holds 41 stocks in its basket with AUM of $650.7 million and average daily volume of 1.1 million shares. The product has a Zacks ETF Rank #5 (Strong Sell) with a High risk outlook.
Invesco Dynamic Energy Exploration & Production ETF (PXE - Free Report) — Up 70%
This product follows the Dynamic Energy Exploration & Production Intellidex Index, which thoroughly evaluates companies based on a variety of investment merit criteria, including price momentum, earnings momentum, quality, management action and value. Holdings 31 stocks in its basket, the fund has amassed $26.3 million in its asset base while trading in average daily volume of 38,000 shares. It charges 63 bps in annual fees and expenses, and has a Zacks ETF #5 with a High risk outlook.
SPDR S&P Oil & Gas Exploration & Production ETF (XOP - Free Report) – Up 68.6%
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 $2 billion and charges 35 bps in annual fees. Volume is good as the fund exchanges around 11.5 million shares per day on average. The fund has a Zacks ETF Rank #5 with a High risk outlook.
Sasol Ltd. (SSL - Free Report) – Up 325.9%
It is engaged in the mining and processing of coal. It also produces chemicals, explores for and refines crude oil, and manufactures fertilizers and explosives. The stock has estimated earnings growth of 45.4% for fiscal year (ending June 2021) and has a Zacks Rank #3. It carries a Value Score of A (see: all the Energy ETFs here).
QEP Resources Inc. (QEP - Free Report) – Up 321.5%
This company is a leading independent energy company engaged in the exploration, development and production of natural gas, crude oil and natural gas liquids. The stock has seen positive earnings estimate revision of 4 cents over the past month for this year. QEP Resources has a Zacks Rank #2 (Buy) and Value Score of A.
Centennial Resource Development Inc. (CDEV - Free Report) – Up 314.4%
This independent oil and gas exploration and production company primarily develops unconventional hydrocarbon reserves in the Delaware Basin, a part of the prolific Permian Basin. The company has seen positive earnings estimate revision of 14 cents over the past month for this year. It has a Zacks Rank #3 and Momentum Score of A.
KLX Energy Services Holdings Inc. (KLXE - Free Report) – Up 308.6%
This company provides oilfield services focused on completion, intervention and production activities for the wells. It saw solid earnings estimate revision of $1.10 over the past month for this year. It has a Zacks Rank #1 (Strong Buy) and a Growth Score of A. You can see the complete list of today’s Zacks #1 Rank stocks here.
Matador Resources Company (MTDR - Free Report) – Up 307.3%
It is among the leading oil and gas explorer in the shale and unconventional resources in the United States. The stock saw positive earnings estimate revision of 3 cents in a month for this year. It has a Zacks Rank #3 and Momentum Score of B.
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