Oil prices have ticked slightly higher in recent weeks, but the SPDR S&P Oil & Gas Exploration & Production ETF (NYSEArca: XOP) did not get that memo. Over the past month, XOP, the most heavily traded exploration and production ETF, is lower by 8%, bringing its year-to-date loss to almost 29%.
In addition to XOP, ETF investors interested in the oil exploration and production space have a number of options available, including the iShares U.S. Oil & Gas Exploration & Production ETF (NYSEArca: IEO) and the PowerShares Dynamic Energy Exploration & Production Portfolio (NYSEArca: PXE).
IEO follows a traditional market capitalization-weighted indexing methodology, which exposes investors to larger companies like ConcoPhillips, EOG Resources and Phillips. XOP tracks a more equal-weight indexing methodology where most components are weighted at around 2.0% of the overall portfolio. Lastly, PXE is considered a smart beta ETF offering that evaluates companies based on a variety of factors like price momentum, earnings momentum, quality, management action and value.
“In March this year, the International Energy Agency (IEA) said that unless the industry approves fresh investments in new projects, global oil supply may be struggling to catch up with demand after 2020, which could result in a sharp jump in oil prices,” reports OilPrice.com. “For the nearest term by the end of this year, another expert, Beat Wittmann, a partner at Porta Advisors, told CNBC that he saw the range for oil prices somewhere at between US$45 and US$60.”
Current OPEC compliance with production cut plans remains above their historical average, and it usually takes between two to three quarters for inventories to normalize after the cuts. The challenge for energy equities is that some oil market observers see more declines coming for crude. Oil traders are concerned over how fast U.S. shale oil producers will increase production to capture the rising prices.
Related: Falling Oil Rig Count Help Oil ETFs Rebound
Meanwhile, advances in U.S. shale oil production technologies are contributing the to supply surplus and weighing on any oil price gains. It has become much cheaper for the upstart U.S. shale producers to extract oil out of the ground, but the growth rate of U.S. oil product has also recently slowed.
“According to Goldman Sachs, Big Oil is now repositioning itself for better profitability and cash generation in the oil-at-US$50 world than they were in the US$100-oil price environment, due to simplification, standardization, and deflation,” according to OilPrice.com.
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