This article was originally published on ETFTrends.com.
When the energy sector falters, oil services stocks and oil services ETFs often endure significant punishment.
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For example, the year-to-date loss incurred by the VanEck Vectors Oil Service ETF (NYSEArca: OIH) is about 200 basis points worse than for standard diversified energy ETFs such as the Fidelity MSCI Energy Index ETF (NYSEArca: FENY).
Other oil services ETFs include the iShares U.S. Oil Equipment & Services ETF (NYSEArca: IEZ), PowerShares Dyanmic Oil & Gas Services Portfolio (NYSEArca: PXJ) and SPDR Oil & Gas Equipment & Services ETF (NYSEArca: XES). These services ETFs include big names like Schlumberger and Halliburton that provide the necessary equipment to drill and maintain oil producing operations.
While those ETFs are struggling this year, some analysts are turning bullish on oil services stocks. The U.S. energy sector have been able to easily access and raise capital, which has led to higher oil production capacity within the industry. Furthermore, improving technologies, notably hydraulic fracturing or fracking technologies, have allowed the U.S. energy sector pump out more oil and achieve profits even as crude prices dipped below their most recent cyclical peaks.
Bullish Views for Oil Investors
“HSBC's Abhishek Kumar's glasses aren't that rosy, but he is getting more upbeat on oilfield-services companies,” reports Teresa Rivas for Barron's. “He writes that he's seen a slightly positive change in the market outlook, leading him to gain confidence that we've already passed the bottom of the cycle.”
The expanding global economy has increased demand for commodities and drawn down oil inventories. For instance, according to the Energy Information Administration, U.S. crude stockpiles have declined for the past 10 consecutive weeks and are now at their lowest level since 2015. Oil services stocks are often more correlated to oil prices than their integrated peers.
Related: Oil Rally Could be Lurking
“Kumar notes that utilization have begun to 'inch up,' while contract durations are increasing. Oil majors are tiptoeing back into the market and hiring rigs after a 'distinctly quiet' 2017 for new contract activity. Financial markets appear to be opening up, given the multiple refinancing deals in recent months,” according to Barron's.
The $1.6 billion OIH tracks the MVIS U.S. Listed Oil Services 25 Index, “which is intended to track the overall performance of U.S.-listed companies involved in oil services to the upstream oil sector, which include oil equipment, oil services, or oil drilling,” according to VanEck.
For more information on the oil market, visit our oil category.
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