uploads///How the economy has been affected by lower crude oil price

Why Did XOP Outperform Other Energy ETFs?


Nov. 20 2020, Updated 5:18 p.m. ET

US crude oil prices

On August 4, 2016, US crude oil (USO) (OIIL) active futures contracts closed at $41.93. They rose by 2.7% on August 4 compared to the previous trading session. That’s 18.2% lower than its 2016 high of $51.23 on June 8, 2016.

On August 3, US crude oil rose by 3.3% even though crude oil inventories were reported to have risen by 1.4 MMbbls (million barrels) in the week ended July 29, according to the U.S. Energy Information Administration. A Reuters survey had suggested a draw of 1.4 MMbbls.

The rise in oil prices coincides with a 3.3 MMbbls draw in gasoline inventory. However, a seasonality study indicates gasoline inventory normally falls in August.

From July 28 to August 4, the US crude oil futures contract for September delivery rose by ~1.9%. This was due to technical buying, and a bullish gasoline inventories report.

Natural gas active futures (UNG) fell by ~1.3% over this period. The recovery in energy ETFs could be attributed to the recovery in oil prices. In Part 4 of this series, we’ll analyze the correlations between these ETFs and crude oil and natural gas.

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Performance of energy ETFs

Below are the performances of some energy ETFs during that period:

  • The Energy Select Sector SPDR ETF (XLE) rose by 0.3%.
  • The Alerian MLP ETF (AMLP) rose by ~1%.
  • The SPDR S&P Oil & Gas Exploration & Production ETF (XOP) rose by 3.4%.
  • The VanEck Vectors Oil Services ETF (OIH) rose by ~0.6%.

The recovery in the above ETFs started with the recovery of oil prices on August 3, 2016.

Historically, XOP has had a higher correlation to crude oil than other ETFs. We’ll look at the correlation between energy ETFs and crude oil in Part 4 of this series. XOP is impacted more by crude oil prices than the Energy Select Sector SPDR ETF (XLE), the Alerian MLP ETF (AMLP), and the VanEck Vectors Oil Services ETF (OIH) because it has more upstream companies in its portfolio.

As a result, XOP rose more than XLE, AMLP, and OIH. From July 28 to August 4, 2016, crude oil futures rose by 1.9%. Later in this series, we’ll look at XLE’s performance.

XOP’s top gainers and losers

Below are XOP’s top gainers from July 28 to August 4:

  • Clayton Williams Energy (CWEI) – ~25.5%
  • Comstock Resources (CRK) – 16.1%
  • Rice Energy (RICE) – 14.2%

XOP’s top losers for that period were:

  • Gulfport Energy (GPOR) – -6.6%
  • California Resources (CRC) – -7.2%
  • Halcón Resources (HK) – -22.4%

Sentiments related to natural gas (UNG) and crude oil (SCO) (DWTI) also impact 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 ETF (IYE), and the Fidelity MSCI Energy ETF (FENY).

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


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