U.S. Markets closed

Oil Spurts on Tight Supply: 5 ETFs in Focus

Sweta Jaiswal, FRM
Continuous investments in technology and streak of contract wins from customers within the U.S. federal government are likely to aid Harris' (HRS) fiscal third-quarter results.

Crude oil prices have been rallying since the start of 2019. In fact, the West Texas Intermediate (WTI) has risen 37% year to date. Tightening global supplies along with consistent demand are considered major factors fueling the rally. Suggesting continued momentum, the U.S. Energy Information Administration recently raised the WTI crude price forecast for 2019 by 4.8%.

Let’s delve deeper into what stimulated the oil price rally.

OPEC+ Deal Curbs Supplies

The Organization of the Petroleum Exporting Countries (OPEC), Russia and other non-member countries signed an agreement to curb production by 1.2 million barrels per day for the first six months of 2019 to address the global supply glut and boost prices (read: Is Fresh OPEC+ Output Cut Enough to Boost Oil & Energy ETFs).

For doing so, October’s output level was taken as a reference point. The 14-member OPEC cartel has agreed to reduce output by 800,000 barrels a day, while Russia and the allied producers will remove 400,000 barrels per day from the market.

Libya Civil War

Libya — a major supplier of oil to Europe — is moving for a military showdown with East Libyan strongman General Haftar after a confrontation with the UN-backed West-Libyan GNA Al Serraj government. The civil war is also expected to severely affect Libya’s oil export numbers.

White House Sanctions on Venezuela and Iran

U.S. sanctions against Venezuela and Iran are consistently hurting the commodity’s fundamentals. The U.S. government announced sanctions against Venezuelan state-owned major oil firm Petróleos de Venezuela in January. According to the International Energy Agency (IEA), Venezuela’s crude output is likely to decline from 1.3 million bpd in 2018 to 750,000 bpd in 2019 owing to the sanctions.

Moreover, oil export dropped 60% last December to just 1.1 million bpd in Iran owing to the imposition of U.S. sanctions (in comparison to the numbers in spring). Per a Reuters report, the United States will take additional decisions regarding the tightening of these sanctions in May. The decisions will largely depend on talks with Saudi Arabia for increasing production.

ETFs in Focus

Here we discuss certain oil ETFs for investors to keep a tab on

SPDR S&P Oil & Gas Equipment & Services ETF XES

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 (read: ETFs & Stocks to Ride on Oil's Biggest Quarter in Decade).

Zacks Rank: #4 (Sell)

AUM: $235.98 million

Expense Ratio: 0.35%

YTD Return: 35.3%

Invesco Dynamic Oil & Gas Services ETF PXJ

This product follows the Dynamic Oil Services Intellidex Index, which thoroughly evaluates companies based on a variety of investment merit criteria, including price momentum, earnings momentum, quality, management action and value (read: 5 Reasons Why Oil Saw the Best January: 5 ETF Winners).

Zacks Rank: #5 (Strong Sell)

AUM: $19.8 million

Expense Ratio: 0.63%

YTD Return: 31.2%

iShares U.S. Oil Equipment & Services ETF IEZ

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.

Zacks Rank: #4

AUM: $164.8 million

Expense Ratio: 0.43%

YTD Return: 30.8%

VanEck Vectors Oil Services ETF OIH

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 (read: U.S. Manufacturing Sector Grows in March: ETF & Stock Picks).

Zacks Rank: #3 (Hold)

AUM: $885.5 million

Expense Ratio: 0.35%

YTD Return: 30.1%

InfraCap MLP ETF AMZA

This actively-managed ETF seeks to provide exposure to midstream master limited partnerships (MLPs) with an emphasis on high current income.

Zacks Rank: N/A

AUM: $485.9 million

Expense Ratio: 2.40%

YTD Return: 18.7%

Bottom Line

There is uncertainty regarding the move OPEC will take in June. Moreover, Russia has started putting pressure on OPEC and its allies to rebalance crude oil production levels starting June. The United States’ taking control over the Russia’s market, where the latter is losing due to output cuts, has compelled Russia to build pressure on OPEC.

Moreover, U.S. crude oil production has risen more than 2 million barrels per day since early 2018 to around 12 million barrels per day, making United States the world's biggest producer. Fears of a global economic slowdown may hurt demand in the near term. The headwinds might break the current oil price rally in the near term.

Want key ETF info delivered straight to your inbox?

Zacks’ free Fund Newsletter will brief you on top news and analysis, as well as top-performing ETFs, each week. Get it free >>


Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
 
Invesco Dynamic Oil & Gas Services ETF (PXJ): ETF Research Reports
 
VanEck Vectors Oil Services ETF (OIH): ETF Research Reports
 
iShares U.S. Oil Equipment & Services ETF (IEZ): ETF Research Reports
 
InfraCap MLP ETF (AMZA): ETF Research Reports
 
SPDR S&P Oil & Gas Equipment & Services ETF (XES): ETF Research Reports
 
To read this article on Zacks.com click here.
 
Zacks Investment Research
 
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report