Oil at a 2016 high
On May 12, 2016, US crude oil (USO) closed at $46.7, its highest level so far in 2016. On May 11, 2016, the EIA (U.S. Energy Information Administration) reported that US crude oil stockpiles had fallen by 3.4 million barrels in the week ended on May 6, 2016, compared to analysts’ estimates of rising inventories.
Analysts surveyed by the Wall Street Journal forecast a rise of 400,000 barrels in crude oil inventory levels. The fall in crude oil inventory was the major driver of the crude oil price rise in the last two days.
XOP outperformed other energy ETFs
The SPDR S&P Oil & Gas Exploration & Production ETF (XOP) outperformed other energy sector ETFs between May 5 and May 12, 2016. The other energy ETFs included the Energy Select Sector SPDR ETF (XLE), the Alerian MLP ETF (AMLP), and the VanEck Vectors Oil Services ETF (OIH). Below are their performances:
- XOP rose 1.2%.
- XLE rose 0.63%.
- AMLP fell 1%.
- OIH fell 0.8%.
XOP, XLE, and OIH began to recover their losses starting on May 9, 2016. AMLP was in a downturn between May 5 and May 11 despite the recovery in crude oil. However, after the fall in crude oil inventories on May 11, 2016, AMLP started to rally. This explains the late sentimental drive for midstream companies with crude oil’s rally.
Historically, XOP has a higher correlation with crude oil compared to other ETFs. Again, XOP tracks crude oil more closely than XLE does because it has more upstream companies in its portfolio.
Upstream energy companies such as Bill Barrett (BBG), Continental Resources (CLR), Triangle Petroleum (TPLM), and Denbury Resources (DNR) have weights of 1.2%, 1.4%, 1.3%, and 1.4%, respectively, in XOP. For this reason, XOP has risen more than XLE.