The VanEck Vectors Unconventional Oil & Gas ETF (NYSEArca: FRAK), which tracks North American fracking and oil sands companies, has participated in the energy sector rally, soaring nearly 37% over the past year.
However, some energy market observers are concerned President Donald Trump’s plan for a border tax, the equivalent of a tariff on goods exported from Mexico to the U.S., could pinch US-based refiners. The Market Vectors Unconventional Oil & Gas ETF tracks the growing oil boom in North America as new extraction techniques help companies produce oil from shale beds and oil sands
FRAK tries to the reflect the performance of an energy sub-sector that includes companies involved in coalbed methane, coal seam gas, shale oil, shale gas, tight natural gas, tight oil and tight sands
“President Trump and the Republican U.S. Congress have been discussing a potential new tax on all imports. Which has been quoted at 20% — a substantial burden on shipments entering America,” reports OilPrice.com. “Such a move would raise the cost for imported oil significantly. And push U.S. refiners to favor domestic crude supplies.”
In the near-term a potential positive for FRAK is rebounding energy sector earnings. The energy sector’s earnings drag is evaporating as S&P 500 energy earnings are expected to be only slightly negative for the fourth quarter and offer significant upside potential moving forward in 2017.
“Refiners would almost certainly start looking to increase domestic oil usage. Which would boost prices for U.S. products like West Texas Intermediate relative to global blends like Brent — due both to actual demand as well as speculative buying from investors jumping on the trend,” according to OilPrice.
Stabilizing crude oil prices and potential production cutbacks from major oil producers could help support sector-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.
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