Daily Gains Letter

Civil Unrest, Summer Vacations, Hurricanes: Energy Sector’s Hot This Summer

By for Daily Gains Letter |

Civil Unrest, Summer Vacations, Hurricanes: Energy Sector’s Hot This SummerWith the start of summer less than one day away, it’s the perfect time to think about those stocks and sectors that could perform well over the next few months. Seasonally, the U.S. energy sector goes through a period of strength between July and October.

What about this year? Judging by the spot price of light crude oil, the U.S. energy sector is already beginning to heat up. West Texas Intermediate (WTI) crude oil is up 4.4% since the beginning of June and 13% over the last two months.

Why the early run-up? It’s not as if the U.S. economy is charging ahead. One reason for crude oil’s strength is due to ongoing tensions in the Middle East, particularly with the Syrian civil war, which has been raging since March 2011, with protestors demanding the resignation of President Bashar al-Assad. According to the United United Nations’ (UN) estimates, more than 90,000 people have been killed.

Earlier this week, the G8 leaders met in Northern Ireland, calling for Syrian peace talks to be held in Geneva “as soon as possible,” though no date has been set. Of course, the civil unrest in Syria and rising tensions in the Middle East continue to affect oil prices and the energy sector globally.

Additionally, summer travel plans are up 17% from last year, with more than two-thirds (69%) of consumers planning to get away in the next three months. This compares to just 59% of consumers who traveled last summer. (Source: “Summer Travel Soars; Many Americans to Spend More,” American Express web site, June 4, 2013.) Of course, as Americans pack up their cars for summer vacation, they’ll also be filling up their gas tanks.

Finally, in the U.S., the 2013 Atlantic hurricane season officially began on June 1 and will last until November 30. And it looks like the era of high activity for Atlantic hurricanes is going to continue; the National Oceanic and Atmospheric Association’s (NOAA) latest outlook for the 2013 hurricane season points to it being well above normal.

In a typical year, the Atlantic seaboard would see 12 named storms, with six hurricanes and three major hurricanes. In 2013, the NOAA has forecast 1320 named storms, of which 711 will become hurricanes and three to six will become major hurricanes. (Source: “NOAA predicts active 2013 Atlantic hurricane season,” National Oceanic and Atmospheric Association web site, May 23, 2013, last accessed June 19, 2013.) With so many hurricanes expected in this region, we can also expect the energy sector to feel the affects to some degree.

Investors hoping to take advantage of the North American energy sector this summer may want to consider looking at any number of exchange-traded funds (ETFs). While energy sector ETFs have not rebounded in step with oil prices, that could change when second-quarter earnings come out in July and August.

And there are a lot to choose from. There are 27 U.S.-traded ETFs in the energy equities category and 25 U.S.-listed ETFs in the oil and gas category.

Energy Select Sector SPDR (NYSEArca/XLE) is the largest energy ETF by assets ($7.76 billion); it’s up 12.2% year-to-date and more than nine percent since the beginning of June. United States Oil (NYSEArca/USO) has assets under management of $1.34 billion and is up just 2.5% year-to-date; however, in June alone, this ETF has gone up 6.1%.

Why an ETF? ETFs are a great way to play a diversified holding of different energy stocks. Owning a basket of energy stocks also cuts down on the risk of owning any one or two individual stocks.

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