Major Oil ETFs Outpace S&P Amid Price Surge

USO, the largest pure play oil ETF has surged about 18% this year so far.

With oil demand outpacing supply, oil prices have surged, boosting ETFs focused on the energy industry higher and turning the fund category into one of 2024's best performers. 

The largest pure play oil ETF, the United States Oil Fund LP (USO) increased 6% in March and has jumped about 18% year-to-date. That surpasses the S&P 500 Index, which had its best first quarter since 2019. 

The $39 billion Energy Select SPDR (XLE), which tracks a market cap weighted index of energy firms, climbed 9% last month, and is up 14% year-to-date. The $131 million United States Brent Oil Fund LP (BNO) rose 6% in March and is up 7% year to date, according to etf.com data.

Oil's gains have come amid Organization of the Petroleum Exporting Countries (OPEC) production cuts and global instability in Ukraine and the Middle East. The price benchmark for crude oil futures in the U.S. is up about 20% year-to-date to its current $85 per barrel. In March, the price rose about 6%.

To be sure, leading funds have been bleeding money. USO has been drained of $323 million since the start of the year, while XLE has lost $845 million over the same time period as investors took profits.

Oil Supply Production Struggles

But these ETFs could see more gains ahead, say some analysts as OPEC continues its production slowdown and regional conflicts evolve. 

“Geopolitical risk to crude and heavy feedstock add to strong (second-quarter) demand fundamentals,” an analyst note from Energy Aspects said, as reported by Reuters. 

J.P. Morgan analysts projected that oil production will grow by single digits this year. Oil prices could hit $100 by September, Natasha Kaneva, the head of global commodities research at J.P. Morgan, wrote.

Meanwhile, consumer demand for oil and gas continues to rise at a healthy pace, especially heading into spring and summer when oil prices have historically risen.

Contact Lucy Brewster at [email protected].