After lagging for most of this year, the energy sector made a strong comeback on oil price surge. This is especially true as oil price logged in the best month since January 2022 with crude oil rising more than 15% in July. With this rally, crude oil has now recovered all its losses for the year.
While most energy ETFs rallied, SPDR S&P Oil & Gas Equipment & Services ETF XES, VanEck Vectors Oil Services ETF OIH, iShares U.S. Oil Equipment & Services ETF IEZ and Invesco S&P SmallCap Energy ETF PSCE led the way higher.
The surge was driven by a tightening oil market fueled by surging crude demand and supply reductions by major OPEC+ players, Saudi Arabia and Russia. Russia announced it would slash crude exports by 500,000 barrels per day in August, while Saudi Arabia is extending its supply curbs into the next month. This reduction in supply, coupled with record-high demand, has resulted in market deficits and a shift away from pessimism toward growth.
Analysts estimate that crude demand is running at a record clip as OPEC+ cuts back production. Demand is being boosted by the solid Q2 GDP data numbers, which showed that the economy grew 2.4% annually from 2% growth in the first quarter, thanks to resilience among consumers and businesses in the face of high interest rates. The data supported the Fed’s view that the economy can achieve a so-called “soft landing” .
Additionally, a decline in inventories at the largest U.S. storage hub has led to a bullish pricing pattern known as backwardation (where later-dated contracts are cheaper than near-term contracts in the oil futures market) in WTI’s nearest two contracts. This signals that the oil market is tightening and demand is robust, paving the way for an oil rally. This trend is acting as the biggest catalyst for the commodity.
Further, the expectations that the Fed is nearing the end of its monetary tightening cycle have boosted market sentiment and contributed to the latest oil price rally. Moreover, speculators have been ramping up bullish bets on U.S. crude futures, pushing prices higher.
Here we have profiled the abovementioned ETFs:
SPDR S&P Oil & Gas Equipment & Services ETF (XES) – Up 23.4%
SPDR S&P Oil & Gas Equipment & Services ETF 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 32 stocks in its basket with AUM of $343.9 million.
SPDR S&P Oil & Gas Equipment & Services ETF charges 35 bps in fees per year from investors and trades in an average daily volume of 95,000 shares. It has a Zacks ETF Rank #3 (Hold) with a High risk outlook.
VanEck Vectors Oil Services ETF (OIH) – Up 21.6%
VanEck Vectors Oil Services ETF 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. It holds 26 stocks in its basket.
With AUM of $2.5 billion, VanEck Vectors Oil Services ETF charges 35 bps in annual fees. The product trades in an average daily volume of 565,000 shares and has a Zacks ETF Rank #3 with a High risk outlook.
iShares U.S. Oil Equipment & Services ETF (IEZ) – Up 21%
iShares U.S. Oil Equipment & Services ETF offers exposure to U.S. companies that provide equipment and services for oil exploration and extraction. It follows the Dow Jones U.S. Select Oil Equipment & Services Index, holding 29 stocks in its basket.
iShares U.S. Oil Equipment & Services ETF has amassed $205.9 million in its asset base while charging 40 bps in fees per year from investors. It trades in a volume of 145,000 shares a day on average and has a Zacks ETF Rank #3 with a High risk outlook.
Invesco S&P SmallCap Energy ETF (PSCE) – Up 17.4%
Invesco S&P SmallCap Energy ETF offers exposure to the companies that are principally engaged in producing, distributing or servicing energy-related products, including oil and gas exploration and production, refining, oil services and pipelines. It tracks the S&P Small Cap 600 Capped Energy Index, holding 32 stocks in its basket.
Invesco S&P SmallCap Energy ETF has accumulated $231 million in its asset base and charges 29 bps in annual fees. It trades in an average daily volume of 27,000 shares and has a Zacks ETF Rank #3 with a High risk outlook.
iShares U.S. Oil Equipment & Services ETF (IEZ): ETF Research Reports
SPDR S&P Oil & Gas Equipment & Services ETF (XES): ETF Research Reports
VanEck Oil Services ETF (OIH): ETF Research Reports
Invesco S&P SmallCap Energy ETF (PSCE): ETF Research Reports
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