Tuesday July 26, 2011 ETF To Watch: DJ U.S. Oil & Gas Exploration And Production ETF (IEO, OXY)

Although the global economy remains shaky to say the least, commodity prices have been soaring as worries over the U.S. dollar continue to dominate the market. Oil prices have held up especially well considering the possibility of a reduction in demand in the foreseeable future and are currently trading around the triple digit mark. This strength in energy prices has helped to boost earnings for a variety of firms tied to the oil and gas industries be it companies that engage in drilling or exploration of these resources. In fact, before the bell yesterday, Baker Hughes, a major driller of energy resources, reported a massive earnings increase as profits at the company nearly tripled from one year ago. This strength in the corporate side of the energy story has put pressure on a variety of other names in the field as well, many of which are reporting earnings later on in the week. One such company is Occidental Petroleum (NYSE:OXY) which looks to give its earnings report before the bell today.

Thanks to these trends in the marketplace, many analysts are predicting a huge pop in the company’s earnings and revenues from the year ago period. The consensus estimate calls for EPS of $2.19 a share on revenues of $5.79 billion, a nearly 67% increase in profits from the year ago period in which the company reported earnings of $1.31 a share on sales of $4.76 billion. These figures also suggest that analysts are looking for the overall profit margin of the company to accelerate as well, expecting the company to become far more efficient at turning sales into profits than it was just one year ago.

Thanks to this key earnings report, investors should look for the Dow Jones U.S. Oil & Gas Exploration & Production Index Fund (NYSE:IEO) from iShares to be in focus during today’s trading session. The fund tracks the Dow Jones U.S. Select Oil Exploration & Production Index which measures the performance of the oil exploration and production sub-sector of the U.S. equity market. Currently, its top individual holding is Occidential Petroleum which makes up just over 15.5% of the fund’s total assets, roughly 500 basis points more than the next biggest holding, Apache Corp. Since OXY makes up such an outsized percentage of IEO’s holdings, today’s report looks to have a huge impact on this relatively popular fund [see all the Energy Exploration & Production ETFs here].

IEO has had a strong last couple of weeks as the fund has gained close to 13.9% in the past month with a gain of nearly 6% in the past two weeks alone. However, expectations for OXY will likely be high for this report so it remains to be seen if the Los Angeles-based company can meet these lofty predictions. Should the company manage to exceed expectations or offer quality guidance for the rest of the year, it could translate into a solid day for IEO. If, however, investors see revenues or profits miss, or if the company expects demand for its services to decline in the second half of the year, we could see a sharp drop in IEO’s performance during Thursday trading that could potentially erase much of the fund’s gains over the past few weeks [see holdings of IEO here].

Written By Eric Dutram From ETF Database  Disclosure: No positions at time of writing.

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