The iShares Global Energy ETF (NYSEArca: IXC) is up 9.14% year-to-date. Not a bad performance compared to some other equity-based energy ETFs, but it still lags what the S&P 500 has returned this year.
With IXC sporting a trailing 12-month dividend yield of almost 4% and some analysts bullish on global oil names, such as BP Plc (NYSE: BP), Royal Dutch Shell (NYSE: RDS-A) and France’s Total (NYSE: TOT), the iShares fund could offer some upside in 2020.
The trade war with China is intensifying pressure on oil prices and energy stocks, and some analysts believe oil supplies are trending higher. Looking ahead, Citigroup and JPMorgan Chase analysts project global supply will expand roughly one million barrels per day more than total demand in 2020, contributing to a surplus each quarter of next year. However, there are benefits to consider with ex-US oil majors.
“One of their big draws: Many non-US energy companies tend to have higher exposure to high-growth prospect drilling regions such as the Middle East, Asia Pacific and Africa than their stateside brethren–not to mention that some are generous dividend payers, too,” reports OilPrice.com.
The expected global supply glut is also the latest threat to the Organization of the Petroleum Exporting Countries and other producers, which have already enacted production caps in an attempt to stabilize prices and balance the market. Predictably, geopolitical headwinds factor into the oil equation. Fortunately, more supply cuts could be in the offing.
Some IXC holdings, including BP and Total, are well-positioned to withstand shifts in the global energy markets.
“Despite the disappointing earnings, TOT revealed that Q3 production climbed 8.4 percent Y/Y to 3.04m boe/day, with the company on track to boost output by 9 percent for the full year,” notes OilPrice.com. “The output growth was given a boost by the start-up and ramp-up of new projects such as Ichthys in Australia, Yamal LNG in Russia, Culzean in the UK, Egina in Nigeria and Kaombo in Angola. The company, however, announced that its 230K bbl/d project in Uganda was facing delays after running into trouble with the Ugandan authorities.”
BP and Total combine for more than 12% of IXC’s weight and those stocks are two of the fund’s top four holdings.
For more information on the energy sector, visit our energy category.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.