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Energy ETFs in Focus as Saudi Likely to Prolong Output Cuts
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Oil prices have been experiencing an upturn recently, largely attributed to a group of 37 economists and analysts who have revised their oil price forecasts for 2023, per oilprice.com. After a period of four months, these experts are optimistic about the impact of OPEC+ output cuts, which they believe will offset China’s weak economic growth.
Analysts now opine that Saudi Arabia is likely to prolong its voluntary one-million-barrel oil supply cut for the third successive month into October amid uncertainty about supplies. Notably, the initial supply cuts seem to have yielded positive results, with oil prices experiencing a notable 15% increase in the past month, reaching approximately $86 a barrel.
Revised Price Forecasts
According to the group of economists and analysts, Brent crude is now anticipated to average $82.45 per barrel for 2023. This is a considerable increase from the previous consensus of $81.95 in July. Similarly, WTI crude is predicted to average $77.83 per barrel throughout the year, surpassing the earlier forecast of $77.20. Notably, the revised Brent forecast suggests an average price of $86.15 for the period from September to December, remaining slightly below the current price of $86.70.
Standard Chartered – a financial research house – has emphasized the effectiveness of producer output restraint, particularly led by Saudi Arabia. This strategic approach is anticipated to set the stage for a price rally in the oil market. Projections suggest that Brent prices could surpass this year’s high at $89.09 per barrel and reach a Q4-average forecast of $93 per barrel. Moreover, there’s a possibility of an intra-quarter high exceeding $100 per barrel, as quoted on oilprice.com.
Tightening Inventories Driving Prices
Despite the seemingly conservative average price consensus, the global oil market continues to grapple with tight supply conditions. Standard Chartered estimated that there was a substantial inventory drawdown of approximately 2.8 million barrels per day (mb/d), as quoted on oilprice.com.
The research house predicts a further drawdown of 2.4 mb/d for the upcoming month. Inventory tightening is expected to remain a key driver for the oil price rally in the coming months. However, analysts caution any further global economic slowdown could still reintroduce volatility in the oil patch.
Challenges Ahead
However, not everyone is aligned with the bullish outlook on oil prices. Some experts express concerns about factors that could restrain prices. For instance, Reuters market analyst John Kemp highlights India’s slowing oil demand growth as a potential drag on prices. Despite achieving record-high consumption levels, India’s oil demand growth has slowed down compared to the rapid rebound observed after the pandemic-induced lockdowns, the same article indicated.
Against this backdrop, below we highlight a few energy ETFs that surged on Sep 1, 2023.
ETFs in Focus
Invesco Energy Exploration & Production ETF PXE
The underlying Dynamic Energy Exploration & Production Intellidex Index is composed of stocks of 30 U.S. companies involved in the exploration and production of natural resources used to produce energy. The fund charges 63 bps in fees and yields 3.22% annually.
iShares U.S. Oil Equipment & Services ETF IEZ
The underlying Dow Jones US Select Oil Equip & Serv Ind is a free-float adjusted market capitalization-wghtd index. It measures the performance of oil equipment & services sector of US equity market by including companies that are suppliers of equipment or services to oil fields & offshore platforms. The fund charges 40 bps in fees.
SPDR S&P Oil & Gas Equipment & Services ETF XES
The underlying S&P Oil & Gas Equipment & Services Select Industry Index represents the oil and gas equipment and services sub-industry portion of the S&P Total Markets Index. The fund charges 35 bps in fees.
SPDR S&P Oil & Gas Exploration & Production ETF XOP
The underlying S&P Oil & Gas Exploration & Production Select Industry Index represents the oil and gas exploration and production sub-industry portion of the S&P Total Markets Index. The fund charges 35 bps in fees.
VanEck Oil Services ETF OIH
The underlying MVIS U.S. Listed Oil Services 25 Index tracks the overall performance of U.S.-listed companies involved in oil services to the upstream oil sector, which include oil equipment, oil services, or oil drilling. The fund charges 35 bps in fees.
iShares U.S. Oil Equipment & Services ETF (IEZ): ETF Research Reports
SPDR S&P Oil & Gas Exploration & Production ETF (XOP): ETF Research Reports
SPDR S&P Oil & Gas Equipment & Services ETF (XES): ETF Research Reports
VanEck Oil Services ETF (OIH): ETF Research Reports
Invesco Energy Exploration & P (PXE): ETF Research Reports
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