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Week End Review of Energy ETFs: What Investors Should Know

PART:
1 2 3 4
Week End Review of Energy ETFs: What Investors Should Know PART 1 OF 4

Oil Prices Fell, but How Are Energy ETFs Performing?

US crude oil prices

On October 20, 2016, active futures contracts for US crude oil (UWTI) (USO) closed at $50.63, an ~2.3% fall compared to the previous trading session. The fall in crude oil prices could be due to profit taking. In the last two trading sessions preceding October 20, 2016, crude oil rose 2.9%.

Oil Prices Fell, but How Are Energy ETFs Performing?

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From October 13 to October 20, 2016, US crude oil (DWTI) (USL) futures contracts for December delivery fell 0.4%. Earlier this week, crude oil prices were under pressure due to doubts surrounding the OPEC deal and supply glut concerns. However, due to a fall of 5.2 million barrels in crude oil inventory, oil prices gained 2.4% on October 19.

Natural gas prices

Natural gas (UNG) active futures fell ~6% from October 13 to October 20, 2016, due to rising inventories level and warmer weather.

Performance of energy ETFs

Here’s how some energy ETFs performed between October 13 and October 20, 2016:

  • The Energy Select Sector SPDR ETF (XLE) rose ~0.6%.
  • The Alerian MLP ETF (AMLP) rose 1%.
  • The SPDR S&P Oil & Gas Exploration & Production ETF (XOP) rose ~0.1%.
  • The VanEck Vectors Oil Services ETF (OIH) rose ~1.2%.

The performances of these ETFs corresponded with a small fall in oil prices during this period. Thus, the marginal moves in XLE and XOP could be attributed to the marginal move in oil (OIIL) prices. Later in this series, we’ll analyze the correlations among these ETFs, crude oil, and natural gas.

Understanding ETF performances

The SPDR S&P Oil & Gas Exploration & Production ETF (XOP) underperformed XLE, OIH, and AMLP from October 13 to October 20, 2016. Historically, XOP has had a higher correlation to crude oil than other energy ETFs. XOP has more upstream companies in its portfolio. XOP is impacted more by crude oil prices than are XLE, AMLP, and OIH.

OIH also has a high correlation with crude oil because its businesses are directly linked to upstream companies’ drilling activities. OIH outperformed XLE and XOP in the trailing week. We’ll look at the correlation of energy ETFs and crude oil in Part 4 of this series.

Sentiments related to natural gas and crude oil (SCO) also impact other ETFs, including the ProShares Ultra Oil & Gas ETF (DIG), the PowerShares DWA Energy Momentum ETF (PXI), the Vanguard Energy ETF (VDE), the iShares US Energy (IYE), and the Fidelity MSCI Energy ETF (FENY).

In the next part of this series, we’ll compare the price performances of the United States Natural Gas ETF (UNG) and the United States Oil ETF (USO).

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