The energy sector is rebounding in a big way this year — exploration and production stocks and ETFs are big reasons why. Just look at the SPDR S&P Oil & Gas Exploration & Production ETF (NYSEArca: XOP), which is up more than 16% year-to-date.
XOP “seeks to provide exposure the oil and gas exploration and production segment of the S&P TMI, which comprises the following sub-industries: Integrated Oil & Gas, Oil & Gas Exploration & Production, and Oil & Gas Refining & Marketing,” according to State Street SPDR.
Market observers and analysts argue that U.S. energy stocks are in a position to outperform broader equity markets this year, even if oil prices don’t move higher. The energy industry has grown more efficient after cutting costs in response to the plunge in crude oil prices in previous years, so they are now in a better position to improve revenue at lower oil prices.
“Certainly, crude prices have turned higher, which is a help, but that’s not the only thing going on here. Energy stocks, including formerly spendthrift E&P companies, have also shown more capital discipline in a way that’s inspiring investors,” reports Teresa Rivas for Barron’s. “And while companies based in the Permian Basin have gotten hit by worries of a pipeline bottleneck, that at least is good news for oil prices overall.”
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Bullish Outlook for Oil
U.S. oil output is near record levels and while the Organization of Petroleum Exporting Countries (OPEC) recently said it will increase production, that increase is not as large as some market observers expected. Those factors could further support oil prices, benefiting funds such as XOP in the process.