uploads///XOP Underperform Other Energy ETFs

Why Is XOP Underperforming Other Energy ETFs?


Aug. 18 2020, Updated 6:28 a.m. ET

A look at US crude oil prices

On July 7, 2016, US crude oil (USO) (OIIL) closed at $45.14. That was 11.9% lower than its 2016 high of $51.23 on June 8, 2016. From June 30–July 7, 2016, crude oil prices were under pressure in the aftermath of the Brexit vote.

On Wednesday, July 6, the American Petroleum Institute estimated a decline of 6.7 million barrels in crude oil inventory for the week ended July 1. On Thursday, July 7, US crude oil fell 4.8% after inventories were reported to have fallen 2.2 million barrels in the week ended July 1. Analysts were expecting 2.3 million barrels, according to a Reuters poll.

From June 30–July 7, active US crude oil futures contracts fell ~6.6%. Natural gas active futures fell about 5.0%. The fall in natural gas prices also impacted energy ETFs.

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Performance of energy ETFs

The SPDR S&P Oil & Gas Exploration & Production ETF (XOP) underperformed other energy ETFs from June 30–July 7, 2016. Below are the performances of XOP and other ETFs for that period:

  • Energy Select Sector SPDR ETF (XLE): fell 2.1%
  • Alerian MLP ETF (AMLP): fell 1.3%
  • SPDR S&P Oil & Gas Exploration & Production ETF (XOP): fell 3.1%
  • VanEck Vectors Oil Services ETF (OIH): fell 2.8%

The fall in the above ETFs started after the fall in oil prices on July 5, 2016, and when Brexit concerns and supply-related fears resurfaced. AMLP fell only 1.3% because falling crude oil has less of an impact on midstream companies than other energy subindustries.

Historically, XOP has a higher correlation to crude oil than other ETFs. We’ll look at the correlation analysis of energy ETFs with crude oil in Part 4 of this series.

XOP tracks crude oil more closely than XLE because it has more upstream companies in its portfolio. So XOP fell more than XLE. From June 30–July 7, 2016, crude oil futures fell 6.6%. Later in this series, we’ll look at XLE’s performance.

XOP’s top gainers and losers

Below are XOP’s top gainers from June 30 to July 7:

Now let’s look at XOP’s top losers for that period:

  • Denbury Resources (DNR): -13.1%
  • Whiting Petroleum (WLL): -13.7%
  • Triangle Petroleum (TPLM): -15.7%

Sentiments related to natural gas and crude oil also have an impact on ETFs. Some of these ETFs include 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, we’ll see why the United States Natural Gas ETF (UNG) outperformed the United States Oil ETF (USO).


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