The depressed crude oil prices have weighed on energy producers, with the upcoming earnings season expected to reveal another dismal result for the sector. However, energy exchange traded funds may see brighter days ahead as we move past a market bottom.
“Analysts currently project that both the price of oil (WTI) and the estimated earnings for the Energy sector will increase over the next several quarters,” John Butters, Senior Earnings Analyst for FactSet, said in a note.
Specifically, analysts project the average price will increase to $55.88 per barrel in the third quarter of 2017 from $46.84 per barrel in the third quarter of 2016. West Texas Intermediate crude oil futures were trading around $46.0 per barrel Monday.
The United States Oil Fund (NYSEArca: USO), which tracks West Texas Intermediate crude oil futures, has declined 7.4% year-to-date.
Meanwhile, the projected earnings for the S&P 500 Energy sector is expected to increase to $14.0 billion Q3 2017 from $4.3 billion in Q3 2016.
“The Energy sector is actually projected to report the highest earnings growth (307%) and be the largest contributor to earnings growth for the entire S&P 500 for CY 2017, due in part to the expectation that the average price of oil in CY 2017 is expected to be nearly $54,” Butters added.
The growth is not surprising as the energy sector has been one of the worst areas in earnings growth. For Q3 2016, the sector is expected to reveal its largest year-over-year earnings decline of 66%, the worst performance of all 11 S&P 500 sectors.
ETF investors interested in gaining exposure to the improving energy sector have a number of broad plays to choose from. For example, the Energy Select Sector SPDR (NYSEArca: XLE), the largest equity-based energy ETF, increased 14.4% year-to-date.
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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). Year-to-date, VDE gained 14.2%, IYE increased 12.0% and FENY advanced 13.0%.
For more information on oil producers, visit our energy category.