Saudi Attack Threatens Oil Supply: Energy ETFs Set To Soar

After see-saw trading in past few months, oil price jumped following an attack on the heart of Saudi Arabia’s oil production facilities in Abqaiq and Khurais, later claimed by Yemen’s Houthi rebels. Notably, U.S. crude spiked as much 15.5% to more than $63 per barrel in the early morning trade today — the biggest intra-day percentage gain since Jun 22, 1998. Meanwhile, Brent soared as much as 19.5% to near $72 per barrel — the biggest intra-day jump since Jan 14, 1991.

The attack is the single-worst sudden disruption ever and is the biggest on Saudi oil infrastructure since Saddam Hussein’s invasion of Kuwait in 1990, when Iraq’s military fired Scud missiles into the kingdom. It also exceeds the loss of Iranian oil output in 1979 during the Islamic Revolution, according to data from the U.S. Department of Energy.

Abqaiq is the world’s largest oil processing facility and crude oil stabilization plant with a processing capacity of more than 7 million barrels per day while Khurais is the second-largest oil field in Saudi Arabia with a capacity to pump around 1.5 million barrels per day. As a result, the disaster halted nearly half of Saudi's oil production and 5% of the global daily output, threatening global supply (read: ETFs to Win as Saudi's New Minister May Seek Same Oil Policy).

Saudi Arabia could restart a significant volume of the halted oil production within days but needs weeks to restore full output capacity. Many market participants expect the Saudi outage to lead to anxiety over the stability of the world’s oil reserves and has raised worries over more unrest hurting supply.

Goldman Sachs (NYSE:GS) expects crude prices to rise at least in the near term. If outage lasted no more than a week, then it could boost crude by $3-$5 per barrel. If Saudi production remains offline for two to five weeks, it could send prices up by as much as $14 per barrel and more than that could easily prop up oil above $75. Per Sanford C. Bernstein & Co, oil price is expected to rise more than 5% in the short term or more than 20% if impact is protracted. However, President Donald Trump authorized a release of crude from its Strategic Petroleum Reserve, which contains over 700 million barrels, if needed to keep the energy market well supplied.

The explosion in the region renewed geopolitical concerns that will again weigh on oil price. Amid the current oil rally backed by a near-term bullish backdrop, energy ETFs are poised to outperform in the days ahead, Below we profile some that could gain the most from the Saudi Arabia attack and the resultant supply threat.

Though these ETFs might have unfavorable Zacks Rank #4 (Sell) or 5 (Strong Sell), these have the momentum to move higher on the news given their outperformance over the past month (read: 5 Top-Performing Energy ETFs Over the Past Week).

VanEck Vectors Oil Services ETF (CA:OIH)

This fund tracks the MVIS U.S. Listed Oil Services 25 Index, which offers exposure to the companies involved in oil services to the upstream oil sector, including oil equipment, oil services or oil drilling.

Zacks Rank: #5
AUM: $632 million
Expense Ratio: 0.35%
1-Month Return: 15.1%

SPDR S&P Oil & Gas Equipment & Services (NYSE:XES) ETF XES

This fund tracks the S&P Oil & Gas Equipment & Services Select Industry Index, which measures the performance of the companies engaged in the oil and gas equipment and services industry (read: Worst Sector ETFs of August).

Zacks Rank: #5
AUM: $147.6 million
Expense Ratio: 0.35%
1-Month Return: 14.1%

iShares U.S. Oil Equipment & Services ETF IEZ

This ETF offers exposure to U.S. companies that provide equipment and services for oil exploration and extraction by tracking the Dow Jones U.S. Select Oil Equipment & Services Index.

Zacks Rank: #5
AUM: $94 million
Expense Ratio: 0.42%
1-Month Return: 13.6%

Invesco Dynamic Oil & Gas Services ETF PXJ

This product follows the Dynamic Oil Services Intellidex Index, which thoroughly evaluates companies based on a variety of investment merit criteria, including price momentum, earnings momentum, quality, management action and value (see: all the Energy ETFs here).

Zacks Rank: #5
AUM: $13.1 million
Expense Ratio: 0.63%
1-Month Return Return: 13.3%

Invesco Dynamic Energy Exploration & Production ETF PXE

This product follows the Dynamic Energy Exploration & Production Intellidex Index, which thoroughly evaluates companies based on a variety of investment merit criteria, including price momentum, earnings momentum, quality, management action and value.

Zacks Rank: #4
AUM: $30.6 million
Expense Ratio: 0.65%
1-Month Return Return: 10.8%

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