Energy stocks and the corresponding ETFs got a big boost Wednesday after the Organization of Petroleum Exporting Countries (OPEC) finally agreed to reduce crude output.
The cartel pledged to pare oil output by 32.5 million barrels per day.
The news sent ETFs such as the Energy Select Sector SPDR (NYSEArca: XLE), the largest equity-based energy ETF, soaring. XLE is already this year’s best-performing member of the sector SPDR suite.
Revitalized earnings could push the sector higher. 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.
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).
SEE MORE: Energy ETFs Rally as Russia Joins OPEC in Considering Supply Limits
Some technical analysts are concerned about the state of equity-based energy ETFs after the group has pushed higher for much of this year.
Energy Select Sector SPDR
“For months now the the advance-decline line and up-down volume have significantly dropped off and diverged from price. Any index rise on less and less breadth is bound to be unsustainable. That said, this can easily continue until XLE makes a lower low,” according to See It Market.
The energy sector is just one of two S&P 500 sectors that currently trades at a noticeable discount to its long-term averages.
Additionally, the energy sector is usually among one of the largest sector weights in value ETFs, underscoring the point that the group is attractively valued relative to some defensive sectors, which trade at lofty multiples.
Still, making the sector’s rebound this year all the more impressive is that it comes against the backdrop of still low oil prices, a scenario many expect will abate as OPEC curbs production.
For those seeking a hedge against further weakness in the energy sector, the ProShares Short Oil & Gas (NYSEArca: DDG) tries to reflect the inverse, or -100%, daily performance of the Dow Jones U.S. Oil & Gas Index.
The UltraShort Oil & Gas ProShares (NYSEArca: DUG) takes two times the inverse, or -200%, daily performance of the Dow Jones U.S. Oil & Gas Index. More aggressive traders can take a look at the Direxion Daily Energy Bear 3X Shares (NYSEArca: ERY), which reflects three times the inverse, or -300%, daily performance of the energy select sector index.
For more information on the oil market, visit our energy category.