How Energy ETFs Correlate to Crude Oil



US crude oil prices

On March 2, 2017, US crude oil (DBO) (OIIL) (USL) (SCO) futures contracts for April delivery closed at $52.61 per barrel, a ~2.3% fall over the previous trading session. Oil prices fell because the EIA (US Energy Information Administration) reported that crude oil inventories rose by 1.5 million barrels for the week ended on February 24, 2017. The rise in oil inventories was in line with analysts’ estimates. However, inventory levels hit fresh historic highs based on EIA data going back to at least 1982.

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On March 2, 2017, active oil futures traded at a discount of $1.51 to the futures contracts 12 months ahead, the highest since February 23, 2017. The sharp rise in the futures spread on March 2, 2017, could point to investor concern about the crude oil demand-supply balance. From February 23, 2017, to March 2, 2017, US crude oil (USL) (OIIL) futures contracts for April fell 3.4%. In the last five trading sessions, WTI crude oil April futures traded between $52.54 and $54.94 per barrel.

Natural gas prices

Natural gas (UNG) April futures rose 2% from February 23, 2017, to March 2, 2017. On March 2, 2017, natural gas active futures rose 0.2%. On the same day, the EIA announced natural gas inventory data for the week ended February 24, 2017. We’ll discuss natural gas inventories in part three of this series. Earlier in the week, technical factors like short covering could have contributed to the gain in natural gas prices. Natural gas traded between $2.64 and $2.84 per MMBtu in the past five trading sessions.

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Performances of energy ETFs

Here’s how some energy ETFs performed between February 23 and March 2, 2017:

  • The Energy Select Sector SPDR ETF (XLE) rose 0.6%.
  • The Alerian MLP ETF (AMLP) rose 0.3%.
  • The SPDR S&P Oil & Gas Exploration & Production ETF (XOP) fell 1.8%.
  • The VanEck Vectors Oil Services ETF (OIH) fell 0.8%.

Understanding ETF performances

The fall in XOP and OIH correspond to the drop in crude oil. The recent rise in natural gas prices might support these ETFs. We’ll discuss the price performance of XLE in part four of this series.

Sentiments related to natural gas and crude oil (SCO) also impact ETFs like the iShares Global Energy (IXC), 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 performance of the United States Oil ETF (USO).


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