The most important issue for investors is to determine which ETF provides the most return during a bull run in crude prices. The graph below demonstrates that the Energy Sector SPDR (XLE) has generally failed to keep up with the rise in crude oil prices over the last two and a half years which corresponds to when the price of oil broke through the $40 level.
The recent surge in ExxonMobil (XOM) has helped propel XLE ahead of crude oil, yet the sector has only outperformed the commodity 10% [3 out of 30 months] during this time period.
The best way for US investors to have participated in the rally in oil prices is through the oil sands producers. The following chart shows the decline in the US dollar vs. the Canadian dollar as well as the growth of the US energy sector vs. Sustainable Oil Sands Sector Index TM [SOSSI].
The oil sands gained an astounding 158%+ on the US benchmark since oil broke above the $40 level. The excess return was substantially above the depreciation of the US dollar vs. the Canadian dollar of 14.4% and I attribute it to the growth of oil production and reserves. The following production growth graph shows that we are at the beginning of a major expansion in North American oil sands production and that there is significantly more growth to follow. Oil sands production is expected to at least triple in the next 10 years from the current 1 million boe/day to 3+ million boe/day in 2015.
The strong fundamentals of the oil sands producers will provide investors with excess returns over the next decade as conventional sources of oil become increasingly scarce around the globe. The recent out-performance of the US energy sector (XLE) vs. crude oil (USO) and the newly launched Claymore Oil Sands Sector ETF (CLO) is a great opportunity for investors to diversify into this growing sector of the North American energy industry.