U.S. crude inventories plunged more than 14 million barrels last week ending September 2, 2016, thanks to the tropical storm Hermine. This represented the steepest weekly inventory drop since 1999. Analysts were expecting a 225,000-barrel rise.
A significant fall in imports into the Gulf of Mexico and the U.S. East Coast due to the storms led to this huge drawdown. Imports into the U.S. Gulf Coast dropped to about a 26-year low at 2.5 million barrels per day.
Analysts said that the storms obstructed cargo ships on the way to U.S. refineries, causing a drop in U.S. imports of 1.8 million barrels a day. The hurricane compelled the evacuation of offshore workers and resulted in the shutdown of 12% of U.S. oil drilling in the Gulf, as per CNBC.
Needless to say, such a massive inventory drop resolves the oversupply issue in the oil patch, at least for the time being. United States Oil Fund (NYSE:USO) (V:USO) , which looks to track the daily changes of the WTI crude, added over 4.1% on September 8, following the release of the inventory data. United States Brent Oil (AX:BNO) , which aims to track the daily changes in the spot price of Brent crude oil, also advanced over 3.8% on the day (read: Oil ETFs Soar on Positive News: Will the Rally Last?).
Along with oil price, several energy equity ETFs recorded smart gains following the release of the stockpile data. Below, we highlight a few ETFs that hit a 52-week high on September 8 (see all energy ETFs here).
S&P 500 Energy Equal Weight Guggenheim (V:RYE)
The 37-stock fund puts as much as 80.52% weight in the oil gas and consumable gas segment followed by 19.2% in energy equipment and services. Chesapeake Energy (NYSE:CHK) Co, (4.28%), Williams Companies Inc (NYSE:WMB). (3.46%) and Spectra Energy Corp (NYSE:SE) (3.22%) are the top three holdings of the fund. The fund charges 40 bps in fees and added about 3.3% on September 8 (read: Top ETFs of the Best Sectors This Year).
PowerShares DWA Energy Momentum ETF (HN:PXI)
The underlying index of the fund focuses on companies with relative strength. The 35-stock fund invests about 86.2% in oil, gas & consumable fuels while energy equipment & services account for the rest. Pioneer Natural Resources (6.28%), Concho Resources (5.89%) and Diamondback Energy (5.49%) are the top three holdings of the fund. The fund charges about 60 bps in fees and tacked on over 2% gains on September 8.
Energy Select Sector SPDR ETF (NYSE:XLE) XLE
The 39-stock fund invests about 83.5% in oil, gas & consumable fuels followed by 16.4% in energy equipment & services. Exxon Mobil (NYSE:XOM) (17.76%), Chevron (NYSE:CVX) (14.24%) and Schlumberger (8.2%) are the fund’s top three holdings. The fund charges 14 bps in fees and yields about 2.76% annually. It added about 1.9% on September 8.
Can the Surge Last?
Since the move is the result of a one-time event, the upcoming weeks may see a rise in inventories. Higher imports and normalization in offshore drilling activities in the Gulf will likely result in increased inventory built-up in the coming weeks. Notably, at 511.4 million barrels, U.S. crude oil inventories are presently at a record high for this time of the year, as per EIA.
In any case, oil investors are eagerly looking forward to the oil producer meeting to be held during September 26–28 on possibilities of output control talks. Though chances of a deal are feeble, oil as well as energy ETFs may see an uptrend in the near term on increased optimism. So, investors can play the above-mentioned ETFs as long as the bullish trend remains (read: Should You Buy Oil ETFs Ahead of the OPEC Meet?).
The abovementioned ETFs have a positive weighted alpha of 23.90, 22.50 and 17.70, respectively. Since a positive weighted alpha hints at more gains, these surging ETFs can be played a little further by investors who have a strong stomach for risks.
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US-OIL FUND LP (USO): ETF Research Reports
US BRENT OIL FD (BNO): ETF Research Reports
SPDR-EGY SELS (XLE): ETF Research Reports
PWRSH-DW EGY MO (PXI): ETF Research Reports
GUGG-SP5 EW EGY (RYE): ETF Research Reports
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