The SPDR Oil & Gas Equipment & Services ETF (NYSEArca: XES), an equal-weight spin on oil equipment and services stocks, has traded slightly lower to start 2017, but a rally in crude prices could boost XES and rival oil services exchange traded funds.
As crude oil prices rebound, shale hydraulic fracturing companies could increase spending on exploration and production this year, supporting further gains in energy services-related exchange traded funds.
A primary reason for the recent bullishness regarding crude is the production cut announced earlier this month by the Organization of Petroleum Exporting Countries (OPEC). OPEC plans to diminish output to a range of 32.5 to 33.0 million barrels per day from its current estimated output of 33.24 million barrels per day.
Technicals for XES look decent as well.
XES “is working on a base-on-base pattern with a potential buy point at 24.68. Shares have slipped below the 50-day moving average in the past couple of weeks, and continued work below that level would indicate weakness. But for now, at least, there’s no serious flaw in the pattern,” reports Investor’s Business Daily. “The exchange traded fund owns companies that provide the muscle to produce oil and gas. That comes from drilling specialists, builders of offshore platforms and geological analysts, plus providers of tubing, pumps and other elements of the vast network that goes into getting oil into barrels.”
The VanEck Vectors Oil Service ETF (NYSEArca: OIH) is largest oil services ETF and is cap-weighted fund, dominated by the industry’s largest companies.
Rivals to OIH and XES include the iShares U.S. Oil Equipment & Services ETF (NYSEArca: IEZ) and the PowerShares Dyanmic Oil & Gas Services Portfolio (NYSEArca: PXJ).
Both XES and IEZ track a slightly broader 37 components, but XES follows a more equal-weight indexing methodology that favors midsized companies while IEZ reflects a traditional market cap-weighted indexing methodology. Lastly, PXJ follows a fundamentally weighted index, which selects stocks based on price momentum, earnings momentum, quality, management action, and value.
“But most energy stocks tend to follow the price of oil more closely than profits. The ETF’s performance has shown a close correlation to oil prices for at least the past three years. On that front, the price of oil has stalled since June, and forecasts are uncertain,” reports IBD.
For more information on the crude oil market, visit our oil category.