Oil Services ETF Could Drive Higher

  • Plenty of equity-based ETFs are enjoying oil’s recent surge
  • OIH logged 23.7% one month surge
  • With oil prices still low, major oil producers have been aggressively cutting back costs

Plenty of equity-based exchange traded funds are enjoying oil’s recent surge, but few can match 23.7% one-month surged logged by the Market Vectors Oil Service ETF (NYSEArca: OIH). OIH and other oil services ETFs are notoriously correlated to oil prices, but that correlation has been paying off for investors.

With oil prices still low, major oil producers have been aggressively cutting back costs to muddle through the lean times. For instance, Exxon Mobil (NYSE: XOM) has cut its drilling budget to a 10-year low and halted share buybacks after last year’s measures failed to counter a crash in energy prices, reports Joe Carroll for Bloomberg.

Exxon stated it will curb spending on rig leases, floating oil platforms, gas terminals and other projects by 25% this year to $23.2 billion, the lowest spending plan since 2007. The steepening cuts come off a 20% reduction in spending to $31 billion on drilling, floating platforms and gas-export terminals, compared to previous expectations of a 12% cut in spending last year.

Last week, Chevron (NYSE: CVX), the second-largest U.S. oil company behind Exxon, announced significant reductions to its 2017 and 2018 capital spending plans, but the rise of oil services ETFs has beaten back that glum capital spending news. In fact some analysts are bullish on some of the names found in ETF’s like OIH.

“A new research note from UBS oilfield services analyst Angie Sedita maintains that the first half of this year could end up being an opportune time for investors with a long-term horizon to buy energy sector stocks. She cautions though that the stocks could remain somewhat range-bound for a few quarters to come,” reports Lee Jackson for 24/7 Wall Street.