ETFs for Soaring U.S. Oil Production
June 13th 2013 at 7:30am by Tom Lydon
Is the U.S. becoming the next Saudi Arabia in terms of oil production? Maybe not, but thanks to soaring output at shale formations in North Dakota, Texas and other states, U.S. oil output is surging. That could boost the future of returns of some energy ETFs.
In its annual review of the global energy market released Wednesday, BP (NYSE: BP) said U.S. oil production rose by 1 million per days last year, helping trim imports by 930,000 barrels per day. Imports to the U.S., the world’s largest oil consumer, are now a staggering 36% below the 2005, reports Brian Swint for Bloomberg.
Last year, the U.S. pumped 8.9 million barrels per day, an almost 14% increase from 2011, according to BP. North American oil supply is set to grow by 3.9 million barrels per day, as emerging economies are on track to exceed oil product consumption by developed markets this year. [Shale Boom Sparks Energy ETFs]
It is also widely expected that if U.S. production does not exceed imports this year, it will happen in the near future, another factor that could be a boon for the following ETFs.
SPDR S&P Oil & Gas Exploration & Production ETF (NYSEArca: XOP)
The SPDR S&P Oil & Gas Exploration & Production ETF is an almost equal-weight fund that gives investors a different avenue to the energy sector beyond cap-weighted funds. Most energy ETFs that are cap-weighted and focused on U.S. stocks are dominated by Exxon Mobil (NYSE: XOM) and Chevron (NYSE: CVX). Those stocks are found in XOP’s 72-stock lineup, but combine for just 3.1% of the ETF’s weight. [Forbes Favorite ETFs]
Adjusting for its components’ weights, XOP’s average market cap is $20.4 billion, but the median market cap in the ETF is just $3.78 billion, indicating XOP does give investors exposure to plenty of mid- and small-cap names as well. The trade-off there is that XOP has a beta of almost 1.6 against the S&P, according to State Street data.