US Crude Oil Near a 2017 High—But Why Are Energy ETFs Falling?



Correlations of energy ETFs

Between October 19 and October 26, the Alerian MLP ETF (AMLP) had the highest correlation of 65.2% with US crude oil active futures. However, it fell 3.9% over this period—the most among our list of energy sub-sector ETFs. During this period, US crude oil prices rose 2.2% and were just 3.3% below their 2017 highest closing level. The Energy Select Sector SPDR ETF (XLE) had the second-highest correlation of 62.9% with oil prices. XLE’s losses were under 1%, as we discussed in the previous part of this series.

In the trailing week, the VanEck Vectors Oil Services ETF (OIH) had a negative correlation of 6.9% while the SPDR S&P Oil & Gas Exploration & Production ETF’s (XOP) correlation was 10.1% with US crude oil prices. OIH fell 2.7%, while XOP was down 2.2%.

The fall in the US oil rig count could be behind the underperformance of OIH compared to oil prices. Moreover, high debt levels could be pushing energy stocks down despite stronger oil prices.

Natural gas

These four energy sub-sector ETFs had negative correlations with natural gas prices in the seven calendar days to October 26:

  • OIH at -89.2%
  • XOP at -46.3%
  • AMLP at -17.7%
  • XLE at -0.4%

Natural gas prices fell 1.1% over this period.

S&P 500 Index

Between October 19 and October 26, OIH had a correlation of just 31.1% with the S&P 500 Index (SPY). The S&P 500 Index fell 0.1% over this period. We already analyzed OIH’s correlations with oil and natural gas prices, which could indicate that industry and company-specific factors are dominating oilfield service stocks.

The trailing-week correlation of the other three energy ETFs with the S&P 500 Index are:

  • XLE at 92.5%
  • XOP at 81.6%
  • AMLP at 50.8%

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