Oil Stocks/ETFs Surge as Crude Oil Hits New Highs
Crude oil futures hit a new high on Friday, extending the sharp uptrend that has been in place since the late-December lows. Since those lows, the price of the U.S. West Texas Intermediate futures contract has risen nearly 50% (as of Friday, 4/5/2019) to a new 5-month high.
Factors Boosting Crude Oil Prices
Much of this strong recovery has been driven by sustained oil production cuts from OPEC and its allies (including Russia) in pursuit of price stabilization. In addition, recent positive manufacturing data from several countries, including China, the U.K., and the U.S., have fueled speculation that a rise in crude oil demand may be on the horizon. Add to this the prospect of a U.S.-China trade agreement, and the near-term future for crude oil looks even brighter.
Crude Oil Surge Lifts Oil Stocks and ETFs
But if you’re not a futures trader, there are still plenty of avenues for getting exposure to crude oil. These include trading oil company stocks and ETFs. For one, there’s the widely-traded ETF, XOP (SPDR S&P Oil & Gas Exploration & Production ETF). As the name suggests, this ETF is made up of key oil and gas exploration and production companies. Year to date, XOP is up a respectable 16%, but its performance is nowhere near the crude oil futures contract.
But if you take some of the top holdings of that ETF, the picture changes dramatically. California Resources (CRC), Chesapeake Energy (CHK), and Devon Energy (DVN) are just three of XOP holdings that have far outperformed both the ETF and the market as a whole. As shown on the chart, these three companies have benefited massively from the crude oil surge, to the tune of around 60%, 50%, and 40% year to date, respectively.
What May Be Next For Oil Stocks and ETFs?
Much will depend on the status of the OPEC production cuts going forward. Also of key concern are economic growth prospects across the globe, including in the U.S., China, and Europe. The OPEC cuts may last quite a while longer. But they will inevitably end, likely bringing crude prices down sharply. And though we had some solid economic data this past week (global manufacturing and U.S. jobs), any upcoming signs of a downturn could reverse the recent gains in crude oil.
IMPORTANT: The information above should not be construed as investment advice and should not be considered as a solicitation to buy or sell securities. Past performance is not indicative of future results. Trading and investing in the financial markets involves substantial risk of loss, and may not be suitable for all investors.
Disclosure: At the time of this article’s publication, we have no position in any security or trade/investment mentioned, nor do we have any business relationship with any company whose stock may be mentioned.
Senior Market Analyst at The Technicals
A veteran global macro trader/analyst, Bart focuses on major market moves in currencies, commodities, fixed income, and global equity indexes. Bart stresses inter-market correlations and dynamics while keeping a close eye on risk. He has published countless market analysis pieces and has been a guest expert for a variety of major financial media. Contact Bart