iShares Global Chief Investment Strategist Russ Koesterich reiterated a bullish view of energy stocks, citing reduced crude oil inventories and less spare capacity among OPEC oil producers as two reasons to be constructive on energy names long-term. The comments were made in a post on the iShares blog.
After tumbling to around $80 per barrel in early June, West Texas Intermediate Crude, the U.S. benchmark contract, is now trading around $98 per barrel. Even after U.S. crude futures slid 17 percent in May, Koesterich was bullish on the energy sector in June.
In his most recent post, Koesterich notes OPEC, which accounts for about 40 percent of global oil supply, has little in the way of spare capacity.
"In May, OPEC's spare capacity was barely above 11% of production, the lowest level since October of 2008," Koesterich wrote. "While spare capacity has rebounded a bit since then, it is still well below the long-term average."
Beyond spare capacity, inventories are declining relative to demand. "As of the end of July, based on data from the American Petroleum Institute, US inventories had the equivalent of 22.5 days of demand, which is also below the long-term average. As a result, I believe that crude will remain well bid," Koesterich wrote.
Koesterich says one way for investors to take advantage of these trends is through global oil names. "Investors should consider an overweight to global energy stocks. Since June 11, 2012, global energy companies have advanced roughly 10%, outperforming a global benchmark by around 3.5 percentage points," he said.
The iShares S&P Global Energy Sector Index Fund (IXC) is one ETF to consider. Home to 93 stocks, IXC has over $1.1 billion in assets under management. Global oil giants Exxon Mobil (XOM), Chevron (CVX), Royal Dutch Shell (NYSE: RDS-A) and BP (BP) combine for over 39 percent of IXC's weight. IXC has jumped 5.3 percent in the past month.
Those willing to embrace an ETF with lower average volume should consider the SPDR S&P Energy Sector ETF (IPW). The $11.5 million ETF features no U.S. companies among its 81 holdings. Shell, BP and Total (TOT), Europe's three largest oil companies, combine for 36 percent of IPW's weight. IPW has slightly outperformed IXC in the past month.
Investors looking for combined emerging markets and energy exposure should consider the EGShares Energy GEMS ETF (OGEM). OGEM allocates nearly 35 percent of its weight to Russia. Familiar names among the ETF's top-10 holdings include Cnooc (CEO), Petrobras (PBR) and PetroChina (PTR).
For more on energy ETFs, click here.
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