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Oil & Energy ETFs to Watch Ahead of Output Freeze Meeting

Sweta Killa

All eyes are currently on the oil producers’ meeting to be held in Doha, Qatar, on April 17 that could stabilize the oil market. Investors are waiting with bated breath to see whether the first deal between the Organization of the Petroleum Exporting Countries (OPEC) and non-OPEC producers in 15 years is struck.

The talks surfaced in mid February to freeze oil output at January levels and have been driving the price of the commodity since then. In fact, oil price bounced back strongly gaining over 53% from its 12-year low and is currently showing strength at around $40 per barrel (read: Crude Back to $40: Can Energy ETFs Sustain Their Rally?).

Mixed Market Reactions

The market has mixed reactions regarding the deal. Some analysts expect freezing production to help in regaining some balance in the oil market while others believe that it will not be strong enough to alleviate the global glut. This is because since most of the producers like Saudi Arabia and Russia produced oil at record levels in January, the output halt at that level will still leave the world with about 300 million excess barrels of oil per year than needed.

Additionally, the International Energy Agency (IEA) in its latest report said that a deal will have a limited impact on the global supply and that the markets are unlikely to rebalance before 2017.

Further, the prospect of the deal seems less likely as the top producers, especially Saudi Arabia, will only agree to freeze oil output when the other countries join the initiative. In this respect, Iran is the only obstacle as it is ramping up production after the international sanctions on it were lifted in January. However, Russian Energy Minister Alexander Novak stated that an agreement on freezing oil production could be reached between oil-producing countries without the participation of Iran (see: all the energy ETFs here).

Given the doubts over the agreement and its impact on the global supply glut, oil and energy ETFs are in focus. Below, we highlight some of the funds that look to be big movers following the meeting:

Oil ETFs

United States Brent Oil Fund (BNO): This fund provides direct exposure to the spot price of Brent crude oil on a daily basis through future contracts. It has amassed $121.3 million in its asset base and trades in a good volume of roughly 268,000 shares a day. The ETF charges 75 bps in annual fees and expenses. BNO surged 33.5% over the past 13 weeks.
United States Oil Fund (USO): This is the most popular and liquid ETF in the oil space with AUM of $3.8 billion and average daily volume of more than 41.5 million shares. The fund seeks to match the performance of the spot price of West Texas Intermediate (WTI or U.S. crude). The ETF has 0.45% in expense ratio and gained 15.6% in the same time period (read: Are These ETFs Making You An April Fool?).
iPath S&P GSCI Crude Oil Index ETN (OIL): This is an ETN option for oil investors and delivers returns through an unleveraged investment in the WTI crude oil futures contract. The product follows the S&P GSCI Crude Oil Total Return Index, a subset of the S&P GSCI Commodity Index. The note has amassed $770.4 million in AUM and trades in solid volume of roughly 4 million shares a day. Expense ratio came in at 0.75% and the note is up 5.8% in the past 13 weeks.
Energy ETFs
PowerShares S&P SmallCap Energy Fund (PSCE): This fund provides exposure to the energy sector of the U.S. small cap segment by tracking the S&P Small Cap 600 Capped Energy Index. Holding 33 securities in its basket, it is highly concentrated on the top two firms that make up for a combined 26.1% share. Other firms hold no more than 8.31% of total assets. The fund is less popular and less liquid with AUM of $48.5 million and average daily volume of about 34,000 shares. Expense ratio came in at 0.29%. PSCE gained 21.7% over the last 13 weeks.
SPDR S&P Oil & Gas Exploration & Production ETF (XOP): This fund provides an equal weight exposure to 60 firms by tracking the S&P Oil & Gas Exploration & Production Select Industry Index. Each holding makes up for less than 2.8% of the total assets. XOP is one of the largest and popular funds in the energy space with AUM of over $2 billion and expense ratio of 0.35%. It trades in heavy volume of around 19.2 million shares a day on average and gained 31.6% in the same time frame (read: 4 Energy ETFs Outperforming on Oil Rebound).
First Trust Energy AlphaDEX (FXN): This follows an AlphaDEX methodology and ranks stocks in the broad energy space by various growth and value factors, eliminating the bottom ranked 25% of the stocks. This approach results in a basket of 60 stocks each holding less than 2.9% of assets. It has managed $1.4 billion in its asset base and trades in volume of 1.2 million shares per day on average. It charges a higher 64 bps in annual fees and gained over 29% in the same time period.
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US BRENT OIL FD (BNO): ETF Research Reports
US-OIL FUND LP (USO): ETF Research Reports
IPATH-GS CRUDE (OIL): ETF Research Reports
PWRSH-SP SC EGY (PSCE): ETF Research Reports
SPDR-SP O&G EXP (XOP): ETF Research Reports
FT-ENERGY ALPH (FXN): ETF Research Reports
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