Energy stocks and the Energy Select Sector SPDR (NYSEArca: XLE), the largest equity-based energy ETF, followed the broader market lower last Friday, but last week was still solid for the downtrodden energy sector. For example, XLE gained more than 2% on the week as some traders believe the sector offers more upside.
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.
“Crude oil recaptured a level above $60 in late December for the first time since 2015. Oil began to claw its way back from lows through 2016 as global oil producers, including the Organization of Petroleum Exporting Countries, made efforts to address a supply-demand imbalance,” reports CNBC.
Related: Shale Supply Issues for Energy Stocks, ETFs
Energy For The Energy Patch
XLE tracks 32 energy companies from within the S&P 500 Index. Top holdings include well-known names such as Exxon Mobil (XOM), Chevron Corp (CVX), and ConocoPhilips (COP).
Declining prices in recent years have prompted scores of major oil producers to rein in capital spending. Technological improvements and greater efficiency has helped U.S. shale producers pump out crude oil at lower margins – some say it is now profitable at less than $50 per barrel. Additionally, companies are finding easy access to credit and private-equity firms have bought out struggling companies, which have kept production flowing.
“Global demand for oil is expected to rise by 1.5 million barrels per day in 2018, according to the International Energy Agency. The oil watchdog increased its full-year estimates in March,” according to CNBC.
Rivals to XLE include the Vanguard Energy ETF (NYSEArca: VDE), iShares U.S. Energy ETF (NYSEArca: IYE) and the Fidelity MSCI Energy Index ETF (NYSEArca: FENY). Exxon is the largest holding in all of those ETFs with ConocoPhillips figuring prominently in the lineups of each of those funds.
For more information on the oil market, visit our energy category.