Oil futures touched a fresh 2023 high of more than $95 on Wednesday after inventories at the largest storage hub in the United States dropped toward levels nearing operational minimums. The rise in prices has led to speculation of $100 per barrel oil in the coming months. Goldman Sachs recently upped its price target to $100 for the next 12 months, as quoted on Yahoo Finance. Even the more bearish forecasters at Citi believe crude may hit that level for a short period of time.

Saudi Arabia prolonged its voluntary one-million-barrel oil supply cut through to the end of the year. Russia too has moved to draw down global inventories and vowed to cut oil exports by 300,000 barrels per day until the end of the year. The dual factors boosted oil prices lately.

In its latest monthly oil report, the International Energy Agency cautioned that the limitations on oil production imposed by Saudi Arabia and Russia are expected to lead to a significant shortfall in the market throughout the fourth quarter.

United States Oil Fund, LP USO has gained 2.50% on Sep 27 and added 35% in the past three months. Against this backdrop, we highlight below a few sector ETFs that can gain/lose if oil continues to hit highs.

ETFs to Benefit

Energy Exploration – Energy Select Sector SPDR Fund (XLE)

This is the most obvious choice. If oil price is staging an uptrend on reduced supplies, oil exploration and production stocks are sure to benefit as these companies will have a chance to pump more oil over the medium term.

Oilfield Services – VanEck Oil Services ETF (OIH)

Companies offering oilfield services, such as drilling, well completion, and maintenance, are also expected to witness increased demand. As oil producers ramp up their operations, they will require more services to optimize their production and operations.

Renewable Energy – iShares Global Clean Energy ETF (ICLN)

The renewable energy sector might also benefit indirectly from the oil price rally. As oil prices rise, there could be a stronger push towards alternative and cleaner energy sources (as investors would look for other alternatives), leading to increased investment in renewables. While renewable energy infrastructure was extremely costly before, the costs have declined a lot in recent times.

ETFs to Lose

Retail – SPDR S&P Retail ETF (XRT)

Rising energy prices do not bode well for retailers as consumers’ wallets get squeezed from higher outlays on gas stations. In fact, not only oil, overall inflation will be rising, hurting consumers’ buying power. This, in turn, is likely to lead the Fed to hike rates faster all over again. Rising rates, in turn, would again weigh on consumers’ ability to shell out on discretionary items.

Oil Refiners – VanEck Vectors Oil Refiners ETF CRAK

Companies in the refining segment benefit from lower oil prices as crude is one of their main input costs. After buying crude, refiners transform it to the finished product gasoline. Now, with crude prices rising, refiners may see a lower crack spread and their profitability may be hurt.

Airlines – U.S. Global Jets ETF (JETS)

The airline sector also performs better in a falling crude scenario. This is especially true as energy costs form a major portion of the overall cost of this sector. So, rising crude prices are likely to curb earnings of airline companies.
Energy Select Sector SPDR ETF (XLE): ETF Research Reports

United States Oil ETF (USO): ETF Research Reports

SPDR S&P Retail ETF (XRT): ETF Research Reports

iShares Global Clean Energy ETF (ICLN): ETF Research Reports

VanEck Oil Services ETF (OIH): ETF Research Reports

U.S. Global Jets ETF (JETS): ETF Research Reports

VanEck Oil Refiners ETF (CRAK): ETF Research Reports

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