Which Of These Energy ETFs Deserve Your Investment?

Extended production cuts by major crude exporters and high global oil demand will likely push oil and gas prices higher in the upcoming months, providing solid tailwinds for the energy industry.

Given the industry’s bright prospects, it could be wise to invest in energy ETFs Energy Select Sector SPDR ETF (XLE – Get Rating) and iShares U.S. Energy ETF (IYE – Get Rating) for portfolio diversification and potential gains. These ETFs provide exposure to a wide range of major energy companies positioned for significant growth.

Saudi Arabia, the world’s biggest crude exporter, recently extended its 1 million barrel per day (mb/d) voluntary supply cut until the end of 2023. Further, fellow heavyweight oil producer Russia pledged to slash oil exports by 300,000 barrels per day until the year-end.

Saudi and Russian production cuts will likely keep feeding into higher oil prices this year and beyond. Last month, the U.S. West Texas Intermediate futures touched $95.03 a barrel, marking the highest level since August last year, with increased production cuts and declining commercial crude inventories in the U.S. fueling oil prices. Also, Brent hit the highest price since November 2022.

Further, a survey of 42 economists and analysts forecast Brent crude to average $84.09 per barrel this year, an increase from August’s consensus estimate of $82.45. Oil prices are expected to stay well above $80 a barrel heading into next year, the Reuters poll showed.

“Saudi Arabia and Russia will dictate oil prices over the next three months,” said Bill Weatherburn, commodities economist at Capital Economics. “Supply cuts will probably be extended into 2024 as neither country wants prices to fall while they are grappling with higher government expenditures.”

In addition, as per U.S. Energy Information Administration (EIA) forecast, the Brent price could average $86 per barrel in the second half of 2023 and reach $88 a barrel in November and December this year. The Brent price in its forecast averages $86 a barrel for 2024.

According to the International Energy Agency (IEA), global oil markets will remain in deficit through the end of the year. In its latest monthly oil report, IEA stated that global oil demand continues to be on track to grow by 2.2 mb/d year-over-year to 101.8 mb/d in 2023, driven by resurgent Chinese consumption, jet fuel, and petrochemical feedstocks.

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Further, IEA expects oil demand to…

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