XOP Weaker than USO and WTI Crude Oil Futures in Week of June 19



Different approaches to crude oil

As we saw in Part 1, WTI crude oil futures lost ~0.58% last week. While retail investors don’t have easy access to the futures market, they can benefit from access to safer, low-cost avenues to bet on WTI crude oil prices.

The first option is energy commodity ETFs such as the United States Oil Fund ETF (USO), an ETF that tracks prompt WTI crude oil futures. Shares of USO trade on the NYSE, similar to company stocks. The fund lost 1.23% last week.

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The second alternative is an ETF like the SPDR S&P Oil & Gas Exploration & Production ETF (XOP). XOP holds many American energy companies that have exposure to oil prices due to their upstream (oil production) operations. Because of their indirect exposure to volatile oil prices, ETFs like XOP are typically a safer, more diversified option for more conservative investors.

XOP lost 2% last week. Investors can also gain indirect exposure, along with steady income, by investing in MLP (master limited partnerships) ETFs such as the Alerian MLP ETF (AMLP). AMLP holds midstream MLP companies like Enterprise Product Partners (EPD).

Comparing performances

As we can see in the graph above, USO overperformed WTI crude oil futures initially, but as the week progressed, and even at the end of the week, it underperformed WTI.

XOP was overperforming both WTI crude oil and USO at the beginning of last week, but started giving lower returns. XOP also underperformed both USO and WTI as the week progressed, giving the lowest returns at the end of the week ending June 19.

XOP holds premier American oil producers like ConocoPhillips (COP), Chevron Corp (CVX), Occidental Petroleum (OXY), and Apache Corp (APA). All these companies make up 5.2% of the ETF.

Continue to the next part to read about trends in the WTI–Brent spread.


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