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What’s Influencing Energy ETFs?

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May. 7 2018, Published 7:13 a.m. ET

Correlations with US crude oil

On April 26–May 3, major energy subsector ETFs’ correlations with US crude oil June futures were:

  • Energy Select Sector SPDR ETF (XLE) at 61.8%
  • VanEck Vectors Oil Services ETF (OIH) at 49.2%
  • SPDR S&P Oil & Gas Exploration & Production ETF (XOP) at 26%
  • Alerian MLP ETF (AMLP) at -81%

In the seven calendar days to May 3, these four ETFs fell 1.5%, 1.9%, 1.9%, and 1.5%, respectively. US crude oil June futures rose 0.4% during this period.

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Natural gas

On April 26–May 3, OIH only had a correlation of -37.8% with natural gas June futures. AMLP, XOP, and XLE had correlations of 60.9%, 24.4%, and 0.3% with natural gas June futures during this period. In the trailing week, natural gas June futures fell 4%.

Equity markets

In the past five trading sessions, these energy ETFs’ correlations with the S&P 500 Index (SPY) were:

  • AMLP at 49.7%
  • OIH at -66.5%
  • XOP at -77%
  • XLE at -85.6%

In the last five trading sessions, the S&P 500 Index (SPY) fell 1.4%. Only AMLP had a positive correlation with SPY during this period. In fact, the trend in the correlations of these ETFs with SPY is opposite to the correlations with US crude oil.

Conflicting correlations and returns across these energy subsectors compared to energy prices and the broad equity market are likely an outcome of extraordinary factors driving these markets. The deadline for sanctions on Iran is May 12, which has been keeping oil prices elevated. Mild weather and a strong inventory gain have been pressuring natural gas. Earnings and trade fears have been taking a toll on equity markets.

To analyze the relationships between the commodity and equity markets, we’ll measure the correlation between oil and equity markets in the past five trading sessions in the next part.

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