Oil ETFs surge as Brent crude price hits $70 a barrel

We explain the two events pushing up the oil price, and how oil ETF performance has varied. 

This week the price of a barrel of Brent crude hit $70 for the first time since the Covid-19 pandemic.

As readers will recall, the pandemic and lockdowns caused the price of Brent crude to fall to as low as around $9 a barrel in 2020. Since then, the price per barrel has been gradually creeping upwards, most notably from November, when successful vaccine announcements improved the economic outlook.

More recently, however, the price of oil has been pushed up by two key events.

First, a meeting on 4 March between OPEC and their OPEC+ partners saw producers agree to keep the current reduced output quota in place, which was a bullish surprise for the oil market.

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Second, Saudi Arabia’s oil industry came under attack from rebel Houthi forces in neighbouring Yemen. The group fired several missiles at several Saudi oil installations, including a Saudi Aramco facility at Ras Tanura seen as vital to petroleum exports. These fears pushed up the price of oil more.

All this has shown up in the performance of oil-related ETFs. Data from FE Analytics shows that the WisdomTree WTI Crude Oil ETC (LSE:CRUD) has returned over 30.4% in sterling terms year-to-date. The WisdomTree Brent Crude Oil ETC (LSE:BRNT) saw similar performance, with returns sitting at 29.3%.

The best returns, however, were to be found in ETFs that track companies involved in the extraction and sale of oil. For example, the Invesco Energy S&P US Select Sector UCITS ETF (LSE:XLES) returned 38.3%. This ETF tracks energy companies included in the S&P 500 Index, most of which are oil companies.

The iShares Oil & Gas Exploration & Production UCITS ETF (LSE:IOGP) saw similar performance, returning 37.5%. This ETF tracks the S&P Commodity Producers Oil & Gas Exploration & Production Index. This index is, in theory, more international, tracking the largest publicly traded companies involved in the exploration and production of oil and gas from around the world. However, as the ETF’s factsheet shows, around 60% of companies in its portfolio are US-listed, representing the continued dominance of the US in this industry. 

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While the share price of oil ETFs has been flying, investors in clean and renewable energy have faced losses so far this year. The L&G Clean Energy ETF (LSE:RENW), for example, has lost over 4% year to date.

Meanwhile, the highly popular iShares Global Clean Energy ETF (LSE:INRG) has lost 16%. The ETF was one of the best performers in 2020, more than doubling investors’ money.