The Energy Select Sector SPDR (NYSEArca: XLE), the largest equity-based energy exchange traded fund, is the second-best performer among this year among the sector SPDR ETFs, trailing only its utilities counterpart.
XLE also proved steady during oil’s recent downturn and that strength could be a sign of more upside to come for the benchmark energy ETF. The third quarter is historically unkind to the energy sector, but some industry observers believe the recent pullback in crude prices is not a cause for alarm and that there is still upside available with some of the big-name integrated oil companies held by ETFs like XLE.
SEE MORE: 4 Energy ETFs may be at Near-Term Tops
Rivals to XLE include the Vanguard Energy ETF (NYSEArca: VDE), iShares U.S. Energy ETF (NYSEArca: IYE) and the Fidelity MSCI Energy Index ETF (NYSEArca: FENY).
Investors should be aware that XLE and its aforementioned rivals allocated hefty portions of their lineups to the largest oil companies, including Dow components Exxon Mobil (NYSE: XOM) and Chevron (NYSE: CVX) along with Schlumberger (NYSE: SLB), the largest oilfield services provider. In some cases Exxon Mobil and Chevron, the two largest U.S. oil companies, combine for up to a third of these ETFs’ weights.
[related_stories]Integrated oil stocks have refining exposure, a segment that benefits when oil prices are low due to improved margins. That can help steady diversified energy ETFs like XLE because these are not dedicated exploration and production funds.
XLE is “vaulting above inverse head & shoulders neckline looks positive (crude has similar pattern, though yet to take out trigger line),” according to Reuters. The ETF is set to “to rally to 50-pct and 61.8-pct Fibo retracements of 2014-2016 bear can target $75.72 and $81.81; inverse H&S calls for surprise longer-term advance to at least $91.00.”
Crude oil prices have been rallying as investors anticipated oil producers will take action to rein in the ongoing supply glut after Saudi Energy Minister Khalid al-Falih said the kingdom would work with other major producers to stabilize markets, reports Libby George for Reuters.
SEE MORE: OPEC Output Freeze Speculation Lift Oil, Energy ETFs
Further supporting prices, over 700,000 barrels per day of oil were missing in Nigeria due to militant attacks and pipeline problems. Venezuela is also on track for its steepest annual oil output decline in 14 years as the government tackles with economic and political problems after years of under investment and mismanagement.
Oil majors have tightened their belts, reducing costs by laying off thousands of workers and halted many new projects. Large integrated oil companies are expected to hold up better than drilling stocks as these giants have both upstream exploration and production, along with downstream refining operations.
For more information on Energy ETFs, visit our Energy category.
Energy Select Sector SPDR
