That headline comes with the acknowledgement that the energy sector remains challenged and just because West Texas Intermediate Futures were up almost 1.7% Tuesday, that does not mean crude is ready to erase its recent losses.
With that in mind, opportunity remains with select equity-based energy ETFs for contrarian investors. As we noted last month, a common trait of the energy ETFs that should be, at the very least, less bad if oil prices continue falling is strong exposure to refining companies. Lower oil prices reduce input costs for refiners, which can lead to higher margins. [Why This Energy ETF Could Surprise]
Year-to-date, the PowerShares Dynamic Energy Exploration & Production Portfolio (NYSEArca: PXE) is off just a half percent, a better showing than ETFs heavy on exploration and production and oil services names. One day does not make a trend, but is worth noting PXE traded higher in a miserable tape for the broader market on Tuesday. Over the past week, the ETF is up nearly 7% and those gains could be a sign of more upside to come.
“Even if the contango structure persists, the storage capacity at Cushing and the Gulf Coast will inhibit the ability to store excess barrels indefinitely. In addition, the upcoming turnaround season will likely expedite the speed at which Cushing and Gulf Coast inventory eventually meets maximum storage capacity. If this threshold is reached, we think eventually differentials will be forced to re-widen and begin to reflect transportation costs. While we predict that global light product cracks may show some year-over-year weakness, we continue to believe that U.S. independent refiners will benefit from the re-widening of North American differentials in the coming months,” according to a Barclays note on refining equities posted by Ben Levisohn of Barron’s.