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Oil Pulls, Broader Market Extends Support to Energy ETFs

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Correlation with US crude oil

On October 11–18, major energy ETFs had the following correlations with US crude oil December futures:

  • the SPDR S&P Oil & Gas Exploration & Production ETF (XOP): 88.3%
  • the Alerian MLP ETF (AMLP): 76.5%
  • the VanEck Vectors Oil Services ETF (OIH): 74.4%
  • the Energy Select Sector SPDR ETF (XLE): 42.9%
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Correlation between US crude oil and energy ETFs

US crude oil December futures fell 3% in the trailing week. OIH, XLE, XOP, and AMLP fell 3%, 0.9%, 0.4%, and 0.2%, respectively, during this period. The fall in oil prices might have dragged these energy ETFs.

Natural gas

On October 11–18, OIH, XOP, AMLP, and XLE had correlations with natural gas November futures of 46.9%, -2.3%, -28.4%, and -33.9%, respectively. Natural gas November futures fell 0.7% during this period.

Based on the correlations, most of these energy ETFs have either ignored or moved inversely to natural gas prices.

Equity markets

Energy ETFs had the following correlations with the S&P 500 Index in the past five trading sessions:

  • XLE: 89.1%
  • XOP: 80.5%
  • OIH: 70.3%
  • AMLP: 66.9%

The S&P 500 Index (SPY) has risen 1.5% in the past five trading sessions. The gain in the broader market might have also limited the downside in these ETFs—based on the correlations. Notably, XLE had the highest correlation with the S&P 500 Index—opposite to these energy ETFs’ correlation trend with oil prices.

Concerns surrounding China’s slowing growth rate will likely impact oil and the broader market, which could impact these energy ETFs.

Next, we’ll discuss oil’s correlation with the equity market.

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