Up 16% YTD, This Oil and Gas ETF May Just Be Getting Started

The energy sector looks like it’s picking up where it left off in 2021 with more strength early in 2022, allowing oil and gas ETFs like the Invesco Dynamic Oil & Gas Services ETF (PXJ) to gain 16% year-to-date.

Looking ahead, market experts foresee more upside, particularly for oil, as production is expected to rise. Global inflation could also push oil and gas prices higher as consumers grapple with rising energy costs.

“U.S. oil production plummeted in the second half of 2020. Production began to recover in late 2020, but the recovery was slow. Thus, 2020 production was lower than 2019 production, and 2021 production was lower than 2020 production,” a Forbes article says.

“But, even though 2021 marked a second straight annual decline, by the end of 2021 it was clear that a recovery was underway,” the article adds. “Late 2021 production reached 11.7 million barrels per day (BPD), which was still a million BPD below 2019 levels, but a million BPD better than late 2020 levels.”

As mentioned, stronger production could be a boon for oil and gas ETFs.

“Further, the rig count has rebounded strongly,” Forbes adds further. “That is a good indicator of the future direction of oil production. In late 2019 there were about 700 rigs drilling for oil. In 2020, that number fell below 200. But, ever since bottoming in the summer of 2020, the rig count has steadily increased.”

A Dynamic Oil and Gas Option

PXJ seeks to track the investment results of the Dynamic Oil Services Intellidex Index. The exchange traded fund generally will invest at least 90% of its total assets in the securities that comprise the underlying index.

The underlying index is composed of common stocks of U.S. companies that assist in the production, processing, and distribution of oil and gas. The fund is up a healthy 37% thus far in 2021.

“PXJ is likely too targeted for those with a long-term focus, but can be useful as a tactical overlay or as part of a sector rotation strategy,” an ETF Database analysis points out. “PXJ is part of the suite of Intellidex product from PowerShares, meaning that this ETF is linked to an index designed to outperform traditional cap-weighted benchmarks. Those who believe this methodology has the potential to generate excess returns may find PXJ to be the ideal way to access this corner of the U.S. energy market.”

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