The Market Vectors Oil Service ETF (NYSEArca: OIH) and other oil services ETFs are notoriously correlated to oil prices, but that correlation has been paying off for investors. Confirmation of that sentiment comes by way of OIH’s year-to-date gain of nearly 23%.
Making OIH’s 2016 resurgence all the more impressive is the fact U.S. shale producers have cut production while giant U.S. oil companies have not been shy about taking the knife to their exploration and production plans.
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.
The recent strength displayed by oil services stocks and ETFs like OIH has some pondering how long the good times can keep going.[related_stories]