Why oil services stocks are outperforming oil producer stocks

The share prices of oil service companies have outperformed the share prices of large-cap oil and gas companies’ common shares since the broader stock market indexes started to move higher at the start of September. The unit price of the Oil Service Holders (OIH-NYSE, $138.52) exchange traded fund (ETF) has increased about 39% since September 1, compared to a 34% price increase for units of the Energy Select Sector SPDR Fund (XLE-NYSE, $67.22) ETF. Interestingly, oil prices have only increased about 21% in the same time frame, which is almost identical to the move experienced by the S&P 500 Index.

There are several other ETFs that track the shares of oil and gas producers and services companies, although those other ETFs do not experience the same magnitude of trading volume as the XLE and OIH ETFs.

The XLE ETF tracks the shares of U.S. large-cap oil and gas companies with recent trading volume about 10 to 20 million units per day. This ETF has a heavy weighting of Exxon Mobil Corp. (XOM-NYSE, $72.80), which significantly influences the direction of the ETF. Since XOM has lagged the XLE ETF during the last several months the recent influence has been a drag on the ETF’s performance.

The OIH ETF tracks the Philadelphia Oil Services Index (OSX, 242.22), which is comprised of the shares of U.S. large-cap oil and gas service companies. Recent trading volume is about 4 to 5 million units per day. This ETF includes oil and gas service companies such as Schlumberger Ltd. (SLB-NYSE, $82.81), Halliburton Co. (HAL-NYSE, $40.41) and Baker Hughes, Inc. (BHI-NYSE, $56.76), which have all outperformed the OIH ETF since Sept. 1. (more)