For the 90 days ending October. 20, the S&P 500 Energy Index jumped 6.1%, while the broader S&P 500 slumped nearly 7%. Due in part to geopolitical concerns, oil prices are trending higher, providing support to the energy equity thesis.
Oil services stocks are getting in on the act, living up to their reputation as one of the groups of energy stocks most highly correlated to oil price action. Over the aforementioned span, the VanEck Oil Services ETF (OIH) gained 1.2%, adding to year-to-gain of 12%.
This year, the VanEck exchange traded fund is outpacing the S&P 500 Energy Index by a nearly 2-to-1 margin and more upside could be on the way for OIH as data indicates investors remain bullish on the energy sector.
Catalysts Abound for Energy ETF OIH
Investors are displaying enthusiasm for the energy patch. While it’s obviously constructive for OIH holders when market participants flock to oil services names, there are other important catalysts afoot for OIH member firms.
Notably, data indicates financing activity for energy exploration and production projects remains steady. That’s impressive when considering the renewable energy boom. It could also be a sign that fossil fuels producers are readying to buy or lease more equipment from OIH member firms.
“Bloomberg reported on that development this week, citing data showing that fees from ‘climate-focused financing’ so far this year had reached $2.5 billion. Meanwhile, fees from oil and gas loans and bond underwriting stood at $2.2 billion,” reported Irina Slav for OilPrice.com.
Further adding to the case for OIH is the point that active fund managers are boosting exposure to the energy patch. In a recent report to clients, Bank of America strategist Michael Hartnett noted equity fund managers recently shifted from slightly underweight energy stocks to an 8% overweight to the sector.
Add to that, solar equities are tumbling. and some hedge funds are actively shorting stocks that previously benefited from the environmental, social and governance (ESG) boom. Put it all together and the stars could potentially be aligning for more OIH gains.
“Yet the industry, specifically in the U.S. shale patch, has repeatedly indicated over the past two years that it has adopted a more long-term perspective and is no longer chasing the immediate but short-lived benefits of a production boost in response to a price rise. Investors evidently appreciate this change of focus,” according to OilPrice.com.
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