In this piece, we will take a look at 11 best oil and gas ETFs. If you want to skip our introduction to recent developments in the oil and gas industry, then head on over to 5 Best Oil and Gas ETFs.
Oil runs the world and its importance to the budgets of consumers and the need of industry came under complete spotlight after the Russian invasion of Ukraine officially started last year. Crude oil futures shot up and petroleum prices soared at the pump. Since oil is widely used to fuel transportation, food costs also rose and most people started to feel the pinch of inflation. However, for the oil companies, this led to a windfall of revenue and profits, billions of dollars of which were rewarded to investors in the form of dividends.
Fast forward to 2023 and the situation is quite different. Big oil is coming down from its peak revenue growth and the latest data from the Energy Information Administration (EIA) shows that gasoline prices in the United States are 4% lower when compared to the end of August 2022. However, this dropping trend can reverse as well, since according to the EIA, oil production cuts by Saudi Arabia and higher demand for fuel during the Labor Day weekend have led to price increases.
2022 was quite a needed respite for the oil industry if we consider the devastation ushered in by the coronavirus pandemic. The rapid spread of the virus that overwhelmed hospitals and put the lives of medical professionals at risk ushered in lockdowns and a near total shutdown of the global travel and tourism industry. Coupled with work at home trends and limitations on the number of people that could gather indoors, the demand for petroleum products dropped. For instance, the revenue of Chevron Corporation (NYSE:CVX) fell from $158 billion in 2018 to $94 billion in 2020. Since then, revenue growth has been on an upward trend, as the oil boom last year and a recovery in U.S. fuel demand have ensured that sales continue to stand higher than $200 billion on a trailing twelve month basis.
As 2023 comes to an end, it's looking as if the fortunes of the oil companies might start to improve. The primary reason for this is an increase in crude oil prices which has pushed them to near their 52 week high levels. Brent oil was trading at $78 at the start of this year, and the prices had hovered around $75 to $85 for most of this year. However, as the first week of September was ending, prices soared to $90, which was just $10 shy of the 52 week high. Oil prices are soaring because Saudi Arabia, the biggest oil supplier in the world, announced that it and Russia would reduce global oil supply by 1.3 million barrels daily by the end of this year. The ramifications of this move, which are beneficial to Saudi Arabia since it benefits from a high oil price, are not so well for the world in general.
Starting from America, while inflation in the U.S. is coming down after businesses and investors suffered through significant pain in the wake of the Federal Reserve's rapid interest rate hikes, the state of the economy is paramount for the consumer and the stock market moving forward. Whether GDP continues to grow or slows down is a key determinant behind the Federal Reserve's decisions to start cutting down rates - which will be a bullish indicator for the economy and the stock market. However, more expensive oil constraints economic growth but continues to drive up inflation - leaving the Fed and the U.S. stock market investor in a situation where they might find that there isn't enough hair on their head to pull out in frustration.
However, America might still be better off when we look at what's happening in Europe. Inflation in the U.K. is still far higher than the Bank of England would like if it were to justify its employment, and the British do not have the luxuries of either vast natural resources or an economy that refuses to stop growing like the American economy. Higher oil prices will both curtail British economic growth and make inflation harder to contain. Therefore, it was no surprise that the Pound dropped to its three month low in September right when the oil price production cut became public knowledge. More expensive oil causes apprehension about global economic growth and makes investors rush to the safe haven U.S. dollar, the king of currencies. Naturally, this leaves other currencies, such as the Pound, quite vulnerable.
As vigilant as ever, investment bank Goldman Sachs was quick to release an analyst note after the latest turmoil in the crude oil sector. It believes that the current decisions by Saudi and Russia to cut oil production can end up influencing the U.S. Presidential Election. The bank is worried that oil prices could soar to $107 per barrel by December, and higher gas prices for American will come at a time when pandemic savings are dropping, college graduates are likely to start repaying their loans, and the economy already starts to feel the brunt of high interest rates. Combined, these could very well mean that a recession does materialize in America, at the same time when inflation is also affected by the high oil prices.
So, seems like the oil industry is in for some good fortune if the prices continue to go up. We decided to take a look at some top performing oil and gas ETFs amidst this flurry of activity in the sector and found some top ones to be ProShares UltraShort Oil & Gas (NYSE:DUG), iShares U.S. Oil & Gas Exploration & Production ETF (BATS:IEO), and Invesco Energy Exploration & Production ETF (NYSE:PXE).
11 Best Oil and Gas ETFs
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Our Methodology
To compile our list of the best oil and gas ETFs to buy, we first made a list of 20 exchange traded funds. Then, their share price appreciation over the last five years was computed, and the ones with gains greater than 10% are listed below.
11 Best Oil and Gas ETFs
11. Invesco DWA Energy Momentum ETF (NASDAQ:PXI)
5 Year Share Price Gains: 12.38%
Invesco DWA Energy Momentum ETF (NASDAQ:PXI) is an ETF that is part of the Invesco fund family. It is a customized fund, which seeks to identify companies with high momentum indicators and invest in them accordingly. With $89.7 million in net assets, the Invesco DWA Energy Momentum ETF (NASDAQ:PXI) is a relatively small fund and its top three holdings are in Cheniere Energy, Inc. (NYSE:LNG), PBF Energy Inc. (NYSE:PBF), and Chord Energy Corporation (NASDAQ:CHRD).
Along with iShares U.S. Oil & Gas Exploration & Production ETF (BATS:IEO), ProShares UltraShort Oil & Gas (NYSE:DUG), and Invesco Energy Exploration & Production ETF (NYSE:PXE), Invesco DWA Energy Momentum ETF (NASDAQ:PXI) is a top performing oil and gas ETF.
10. iShares MSCI Global Energy Producers ETF (NYSE:FILL)
5 Year Share Price Gains: 14.96%
iShares MSCI Global Energy Producers ETF (NYSE:FILL), part of the iShares fund family invests in firms mining oil, gas, and other fuels. This excludes other members of the oil supply chain, such as refiners and marketers from its target list unless they have diversified their operations. Total net asset value is $115 million and the top three holdings are Chevron Corporation (NYSE:CVX), Exxon Mobil Corporation (NYSE:XOM), and Shell Plc (NYSE:SHEL).
9. iShares Global Energy ETF (NYSE:IXC)
5 Year Share Price Gains: 15.45%
iShares Global Energy ETF (NYSE:IXC) is another iShares ETF. As opposed to the energy producers fund, it expands its scope to include both energy distributors and producers. When compared to the previous two funds, it is quite sizeable with more than a billion dollars of net assets. There are 42 companies in the portfolio, and the top three investments are similar to the Global Energy Producers ETF.
8. iShares U.S. Energy ETF (NYSE:IYE)
5 Year Share Price Gains: 19.62%
Yet another iShares ETF, the iShares U.S. Energy ETF (NYSE:IYE) focuses on U.S. oil and gas producers and distributors. It has $1.3 billion in net assets and has 40 holdings in its portfolio. The ETF has a price to earnings ratio of 8.45, and since it is a U.S. energy ETF, Shel is absent from its top three holdings, with both Exxon and Chevron present. The British oil firm is replaced by ConocoPhillips (NYSE:COP). Looking at hedge fund sentiment, 73, 71, and 62 out of the 910 part of Insider Monkey's database had held a stake in Chevron Corporation (NYSE:CVX), Exxon Mobil Corporation (NYSE:XOM), and ConocoPhillips as of Q2 2023 end.
7. Fidelity MSCI Energy Index ETF (NYSE:FENY)
5 Year Share Price Gains: 23.58%
Fidelity MSCI Energy Index ETF (NYSE:FENY), while not part of the iShares fund family, is an ETF that also focuses on U.S. energy companies. It has $1.6 billion in assets under management, and the top three holdings remain similar to the iShares U.S. Energy ETF.
6. Energy Select Sector SPDR Fund (NYSE:XLE)
5 Year Share Price Gains: 25.36%
Energy Select Sector SPDR Fund (NYSE:XLE) tracks the energy sector of the S&P500 index. It is one of the older funds on our list, since it was set up in 1998. Since the ETF tracks the S&P 500's energy constituents, its top holdings are limited mostly to American companies. Along with Chevron and Exxon, Schlumberger Limited (NYSE:SLB) is also a major part of the ETF. The fund has $38 million in assets and a net asset value (NAV) of $91.28 per share.
ProShares UltraShort Oil & Gas (NYSE:DUG), Energy Select Sector SPDR Fund (NYSE:XLE), iShares U.S. Oil & Gas Exploration & Production ETF (BATS:IEO), and Invesco Energy Exploration & Production ETF (NYSE:PXE) are some top oil and gas ETFs.
