The Energy Information Administration (EIA) on Aug 22, reported that U.S. crude inventories dropped by 5.8 million barrels for the week ending Aug 17. Following this, crude oil price rose to a two-week high to just over $74 a barrel. Moreover, crude-oil futures increased for the fifth consecutive session.

This rise was partially supported by an anticipation of a fall in oil exports from Iran due to new sanctions on the middle-eastern country by the United States. Under such circumstances, investing in energy mutual funds would provide value for money.

Oil Prices Rally

A wider-than-expected drop in U.S. crude inventories not only supported oil prices in America but also served to negate the global decline in oil prices due to escalating trade war tensions between the United States and China. West Texas Intermediate oil for October delivery rose 3.1% to $67.86 in its full session as a front-month contract. This was its highest level since Aug 7 and has increased for five straight sessions.

Notably, October Brent crude gained 3% to finish at $74.78 — its highest level since Jul 30. Also, gasoline stockpiles increased 1.2 million barrels last week. The EIA also reported that crude production in America increased to 11 million barrels a day last week. The figure is up almost 1.5 million barrels a day from last year.

What Supported Oil Prices?

Despite a huge increase in per day crude production, oil prices have rallied in the past few sessions. Such a rally stems primarily from anticipation that Iran would be forced to curtail its oil imports due to latest sanctions that the United States has imposed on the middle eastern country. Oil companies in Europe have already started cutting their purchases from Iran. Under such circumstances, global oil supplies might reduce by approximately 1.5 million barrels a day.

Also, pushing oil prices higher were comments from President Donald Trump regarding Fed Chief Jerome Powell’s stance on rate hikes. Trump openly criticized Powell’s approach, stating that he was “not thrilled” about it. This led to weakness in the greenback, which made oil even cheaper for buyers outside the United States.

4 Best Choices

Given such circumstances, we have highlighted four energy mutual funds that are poised to gain. These funds also carry a Zacks Mutual Fund Rank #1 (Strong Buy) or #2 (Buy). Moreover, these funds have encouraging three and five-year returns. Additionally, the minimum initial investment is within $5000.

We expect these funds to outperform their peers in the future. Remember, the goal of the Zacks Mutual Fund Rank is to guide investors to identify potential winners and losers. Unlike most of the fund-rating systems, the Zacks Mutual Fund Rank is not just focused on past performance, but also on the likely future success of the fund.

The question here is: why should investors consider mutual funds? Reduced transaction costs and diversification of portfolio without several commission charges that are associated with stock purchases are primarily why one should be parking money in mutual funds.

Fidelity Select Energy (FSENX - Free Report) invests a huge chunk of its assets in securities of companies that are engaged mainly in the energy field. FSENX seeks growth of capital and invests mainly in common stocks. The fund focuses on acquiring securities of both U.S. and non-U.S. companies.

This Sector – Energy product has a history of positive total returns for over 10 years. Specifically, the fund's returns over the three and five-year benchmarks are 8% and 1.3%, respectively.

FSENX sports a Zacks Mutual Fund Rank #1 and has an annual expense ratio of 0.78%, which is below the category average of 1.37%.

Columbia Global Energy & Natural Resources Z (UMESX - Free Report) seeks capital growth for the long run. UMESX invests more than 80% of its assets in securities of domestic and foreign companies. The fund primarily focuses on acquiring securities of companies from natural resources and energy industries.

This Sector – Energy product has a history of positive total returns for over 10 years. Specifically, the fund's returns over the three and five-year benchmarks are 8.7% and 2.7%, respectively.

UMESX carries a Zacks Mutual Fund Rank #2 and has an annual expense ratio of 1.10%, which is below the category average of 1.35%.

Vanguard Energy Investor (VGENX - Free Report) invests a major portion of its assets in equity securities of companies from the energy sector. VGENX normally invests in stocks of companies that are engaged in the production, marketing, transmission and research of energy. The fund seeks growth of capital for the long run.

This Sector – Energy product has a history of positive total returns for over 10 years. Specifically, the fund's returns over the three and five-year benchmarks are 9.1% and 1.7%, respectively.

VGENX has a Zacks Mutual Fund Rank #2 and an annual expense ratio of 0.38%, which is below the category average of 1.37%.

Fidelity Advisor Energy T (FAGNX - Free Report) seeks growth of capital over the long run. FAGNX invests a chunk of its assets in common stocks of companies engaged in operations related to the energy domain. The fund invests in securities of both U.S. and non-U.S. companies. It is a non-diversified fund and gives precedence to several factors, including financial strength and economic condition, before selecting a company.

This Sector – Energy product has a history of positive total returns for over 10 years. Specifically, the fund's returns over the three and five-year benchmarks are 2% and 1.1%, respectively.

FAGNX sports a Zacks Mutual Fund Rank #1 and has an annual expense ratio of 1.36%, which is below the category average of 1.37%.