Among commodities exchange traded products, the United States Oil Fund (NYSEArca: USO), which tracks West Texas Intermediate crude oil futures, and the United States Brent Oil Fund (NYSEArca: BNO), which tracks Brent crude oil futures, garner plenty of attention.
Oil, as is often the case, has been volatile this year, but some market observers bullish traders should wait until 2017, pointing to next as a prime time for oil prices to really rebound. While production has declined in the U.S., recently rebounding oil prices are encouraging exploration and production companies to revisit spending plans with some increasing capital expenditures. That has some oil market observers concerned about a rising rig count and the subsequent impact on crude prices.
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Some professional traders do not see the current oil bear market lasting very long. Still, some concerned oil market participants believe oil is rallying without strong fundamental cause. A case can be made that oil’s rally is defying still troubling supply dynamics and tepid demand.
“When you step back and look at a longer time frame, it is clear that this oil price cycle which started in mid-2014 bottomed in February, 2016. The most recent pullback that started late in June and continued through early August was just the speculators overplaying their hand on the short side. The brief dip below $40/bbl did not get close to the double-bottom in February,” according to OilPrice.com.
[related_stories]In addition to commodities plays, investors should consider equity-based ETFs, such as the Energy Select Sector SPDR (NYSEArca: XLE) due to some anomalies with the energy’s sector weight in broader equity indexes. XLE, the largest energy sector ETF, is one of this year’s best-performing sector funds.
“During the first six months of this year, the energy sector’s weighting in the S&P 500 dipped below 7%. There has never been a time when the energy sector’s weight has dropped below 7% and the sector did not outperform the market over the subsequent three years. This is not going to be the first time it happens,” reports OilPrice.com.
SEE MORE: 4 Energy ETFs may be at Near-Term Tops
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.
For more information on Energy ETFs, visit our Energy category.