Crude Oil or Earnings Season: Which Is Driving Energy ETFs?
US crude oil prices
On February 2, 2017, US crude oil (USO) (OIIL) (USL) (SCO) futures contracts for March delivery closed at $53.54 per barrel—an ~0.6% fall compared to the previous trading session. The fall came despite reports of cuts in OPEC and Russian production and heightened tensions between the US and Iran. The weakness could be attributed to a very bearish US crude oil and refined products inventory report.
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From January 26, 2017, to February 2, 2017, US crude oil (USL) (OIIL) futures contracts for March fell 0.4%. Lately, the oil market has been concerned about rising US oil production pressuring oil prices. US production has been rising as crude oil prices recovered on the back of OPEC and Russia’s action to support prices.
Natural gas prices
Natural gas (UNG) March futures fell ~6.2% from January 26, 2017, to February 2, 2017. On February 2, 2017, natural gas active futures rose 0.6% due to the fall in natural gas inventories. Earlier in the week, higher temperatures had a negative impact on natural gas prices.
Performances of energy ETFs
Here’s how some energy ETFs performed from January 26, 2017, to February 2, 2017:
- The Energy Select Sector SPDR ETF (XLE) fell 3%.
- The Alerian MLP ETF (AMLP) was unchanged.
- The SPDR S&P Oil & Gas Exploration & Production ETF (XOP) fell 4.2%.
- The VanEck Vectors Oil Services ETF (OIH) fell 4.1%.
Understanding ETF performances
The performances of energy ETFs such as XLE, XOP, and OIH correspond to the performances of stocks that make up the ETF. These three ETFs fell more compared to a 0.4% fall in oil prices. We’ll discuss XLE’s performance in Part 4 of this series. However, AMLP’s performance corresponds better to the small fall in oil prices.
Sentiments related to natural gas and crude oil (SCO) also impact other ETFs including the ProShares Ultra Oil & Gas (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 analyze the price performance of the United States Oil ETF (USO).