There is no dearth of ETFs tracking large-cap energy stocks, but one stood above the crowd on Tuesday. Tuesday's effort may not be one-and-done event for this ETF, either. With a deluge of marquee earnings reports from the energy sector still to come, the somewhat unheralded iShares Dow Jones U.S. Oil & Gas Exploration & Production Index Fund (IEO) has room to run higher.
On volume that was better than double the daily average, the iShares Dow Jones U.S. Oil & Gas Exploration & Production Index Fund jumped almost 2.7 percent today. One catalyst was a strong earnings report from refinery operator Valero (VLO).
Valero said its fourth-quarter profit surged to $1.01 billion, or $1.82 per share, from $45 million, or 8 cents per share, a year earlier. Revenue rose to $34.70 billion from $34.67 billion. Analysts expected a profit of $1.22 a share on revenue of $31.37 billion. That news sent Valero soaring by almost 13 percent, touching off a rally across the refiner space.
That was good news for IEO because Valero is the ETF's seventh-largest holding at a weight of almost 4.5 percent. IEO could continue receiving a boost from refiners because Phillips 66 (PSX), the ETF's third-largest holding with an allocation of 7.4 percent, steps into the earnings confessional Wednesday. So does Marathon Petroleum (MPC), IEO's sixth-largest holding.
A potentially significant day for IEO on Wednesday could be followed by more of the same on Thursday when Occidental Petroleum (OXY), the fourth-largest U.S. oil company, reports fourth-quarter results.
California-based Occidental is in the midst of a cost-cutting program that could show some positive impact on the Q4 results. Important to note is the fact that oil prices started creeping higher in the fourth quarter and Occidental as one of the "oilier" oil companies, is often more sensitive to price fluctuations for the commodity than its rivals.
Chartists will find interesting the fact that IEO closed at $69.75 on Tuesday, just below stiff resistance at $70. If Phillips 66 and Marathon Petroleum can follow in Valero's footsteps Wednesday and deliver blowout results, IEO should have no problem traversing $70 and starting a new leg higher.
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