The Organization of Petroleum Exporting Countries (OPEC) is looking to trim oil output in a bid to support prices, a move that could lift oil-related exchange traded funds, such as the VanEck Vectors Oil Refiners ETF (NYSEArca: CRAK).
CRAK tracks the MVIS Global Oil Refiners Index. That index “is a rules-based, modified capitalization weighted index intended to give investors a means of tracking the overall performance of companies involved in crude oil refining which may include: gasoline, diesel, jet fuel, fuel oil, naphtha, and other petrochemicals,” according to VanEck.
Stabilizing crude oil prices and potential production increases from U.S. shale producers could also bolster the case for North American refiners. The U.S. refining sub-sector has been one of the most profitable sectors in the U.S. economy over the past five years.
“The production cuts by OPEC+, an expanded coalition of oil-producing nations that includes Russia and Mexico, are unlikely to eliminate the production glut, Goldman Sachs analyst Brian Singer writes, because of the continued growth in U.S. oil production,” reports Avi Salzman for Barron’s.
The CRAK Call
Refiners have been boosting buybacks and dividends in recent years, trends that are expected to continue going forward.
Production cuts from OPEC and their allies have largely contributed to the cut in supply. Meanwhile, expanding economies around the world has bolstered demand for raw materials such as crude oil.
“Goldman expects WTI oil to trade around $50 to $60 and Brent to trade at $55 to $65 in 2020—not a disaster for oil stocks, but not exactly a tailwind either. Some stocks can still do well under those conditions, however,” according to Barron’s.
CRAK holds 25 stocks.
Looking ahead, the U.S. Energy Information Administration (EIA) cut its forecasts for 2019 world oil demand growth and U.S. crude production in light of the growing trade tensions between the world’s two largest economies. Trade tensions also weighed on the energy market Wednesday after U.S. President Donald Trump said he was pushing back a trade deal with China.
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