Oil prices don’t look to be letting up, so when momentum is this strong, it’s best to continue riding the rally with ETFs like the iShares U.S. Oil & Gas Exploration & Production ETF (IEO).

First, a surprise oil production cut by Saudi Arabia earlier this year propelled oil higher and now, it’s a weaker dollar. As a Reuters article noted regarding Thursday’s trading session, the “dollar fell for a third straight day and was at its lowest level in a week against a basket of currencies.”

The fund seeks to track the investment results of the Dow Jones U.S. Select Oil Exploration & Production Index, which is composed of U.S. equities in the oil and gas exploration and production sector. IEO generally invests at least 90% of its assets in securities of the underlying index and in depositary receipts representing securities of the underlying index.

The underlying index measures the performance of the oil exploration and production sector of the U.S. equity market. IEO’s expense ratio comes in at 0.42%.

IEO gives investors:

  1. Exposure to U.S. companies that are engaged in the exploration, production, and distribution of oil and gas
  2. Targeted access to domestic oil and gas stocks
  3. Use to express a sector view
  4. Strong performance, with the fund up almost 110% within the past year and 49% thus far in 2021

IEO Chart

Weaker Dollar = Higher Oil

Naturally, dollar indexes like the Dow Jones FXCM Dollar Index are exhibiting signs of greenback weakness as the U.S. dollar declines. The index has been exhibiting a pronounced downtrend the last 5 days as the stimulus bill news rallies equities once again.

This, in turn, is feeding into higher oil prices. This should keep the bulls happy until inflation fears return.

“Oil prices rose more than 2% on Thursday on a weaker dollar and expectations that a crude glut would be short-lived due to a steep fall in U.S. fuel stocks and a resumption of operations by Texas refiners,” the Reuters report said. “Brent crude oil futures for May settled up $1.73, or 2.6%, to $69.63 a barrel while U.S. West Texas Intermediate crude for April ended the session $1.58 or 2.5% higher, at $66.02.”

^DJFXCMD Chart

“The complex has recovered back to above yesterday’s highs with major assistance from a weak dollar/strong equity combo,” Jim Ritterbusch, president of Ritterbusch and Associates said. “We feel that the energy complex could remain in a stall well into next week with WTI bounded roughly by parameters of about $63 to $68 before any renewed up-spike.”

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