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Did the Equity Market Help Energy ETFs Rise?

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Apr. 6 2018, Published 9:33 a.m. ET

Correlations

On March 29–5, 2018, energy subsector ETFs’ correlations with US crude oil May futures were:

  • the Energy Select Sector SPDR ETF (XLE) at 94.5%
  • the VanEck Vectors Oil Services ETF (OIH) at 94.1%
  • the SPDR S&P Oil & Gas Exploration & Production ETF (XOP) at 93.7%
  • the Alerian MLP ETF (AMLP) at 78.6%

During this period, these energy ETFs’ returns were:

  • OIH rose 2.4%.
  • XLE rose 1.8%.
  • AMLP rose 1.3%.
  • XOP rose 1.1%.

During this period, US crude oil May futures fell 2.2%.

On April 5, 2018, OIH, XLE, AMLP, and XOP rose 2.6%, 1.8%, 1.5%, and 2.9%, respectively. US crude oil prices only rose 0.3%. The S&P 500 Index (SPY) rose 0.7% on the same date. Later in this series, we’ll discuss how the broader market impacted these energy ETFs.

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Natural gas

On March 29–April 5, 2018, energy subsector ETFs’ correlations with natural gas May futures were:

  • XLE at 35.4%
  • OIH at 29.4%
  • XOP at 29.2%
  • AMLP at -2.3%

In the seven calendar days to April 5, 2018, natural gas May futures fell 2.1%.

Broader market’s influence on energy ETFs

On March 29–April 5, 2018, these energy ETFs’ correlations with SPY were:

  • XOP at 86.2%
  • XLE at 83.5%
  • OIH at 2%
  • AMLP at 65.9%

SPY rose 0.8% in the trailing week. XLE, AMLP, and SPY moved in the same direction in three instances in the past four trading sessions. XOP and OIH’s moves converged with SPY in all of the instances in the last four trading sessions.

The push from the broader market could have helped these energy ETFs overcome oil’s weakness. The equity market sentiments could help stocks rise despite underlying fundamental drivers. These ETFs hold energy stocks. There was a divergence between energy ETFs and US crude oil’s returns in the trailing week.

Next, we’ll discuss the statistical relationship between oil and the broader market.

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