The energy sector was off to a weak start this year on falling oil prices and concerns on the global supply glut for crude. Trading in oil has been rough as of late due to a rising dollar and growing production in Libya, the North Sea, and Iran.
Libya has started ramping up its production following the restart of the El Sharara field earlier this month. The country tripled its oil supply to 650,000 barrels a day for the three weeks ending January 13. With the start of the Buzzard oil field, the North Sea output is also expected to rise.
Further, Iran and the major world powers finally entered into an interim deal in which the former would curb its nuclear activities in exchange for loosened international sanctions. The agreement– effective January 20 –will enable Iran to export more crude, something that could result in lower crude prices (read: Oil ETFs in Focus on Iran Deal).
Moreover, U.S. oil production is surging thanks to shale formations and newly tapped oil and gas fields in North Dakota and Texas. The rising global supply has taken a toll on oil prices and pushed many oil producing stocks down this year.
In such a backdrop, many energy ETFs have also seen choppy trading since the start of the year and this trend is likely to continue at least for the short term as global production continues to rise.
Vanguard Energy ETF (NYSEARCA:VDE)
This fund manages a $2.5 billion in asset base and provides exposure to a basket of 162 energy stocks by tracking the MSCI US Investable Market Energy 25/50 Index. The product charges a low fee of 14 bps per year from investors and is tilted toward large cap stocks. Volume is moderate as it exchanges more than 100,000 shares a day.
Exxon Mobil (NYSE:XOM) and Chevron (NYSE:CVX) dominate the fund’s holdings at 23% and 12.5%, respectively, while other firms make up for less than 6.3% of assets. From a sector look, integrated oil & gas make up for the largest share at 40.8% of assets closely followed by production and exploration (26.40%), and equipment services (16.90%).