Oil’s Impact on Energy ETFs

On March 14–21, major energy ETFs had the following correlations with US crude oil May futures:

• the VanEck Vectors Oil Services ETF (OIH): 79.9%
• the SPDR S&P Oil & Gas Exploration & Production ETF (XOP): 74.2%
• the Energy Select Sector SPDR ETF (XLE): 61.3%
• the Alerian MLP ETF (AMLP): -0.1%

US crude oil May futures rose 1.8% in the trailing week. XLE, AMLP, OIH, and XOP rose 1.9%, 3.1%, 3.7%, and 4.6%, respectively. The rise in oil prices might have boosted most of these energy ETFs. XOP, which outperformed energy ETFs, had the second-highest correlation with oil prices.

In the trailing week, AMLP, XLE, OIH, and XOP had correlations with natural gas April futures of 88.7%, 48.2%, 43.4%, and 16.2%, respectively. Natural gas April futures fell 1.2%. AMLP had a mild negative correlation with oil. AMLP had the highest positive correlation with natural gas prices. The Fed’s decision not to hike key interest rates on March 20 might have helped AMLP to overcome natural gas’s weakness. Midstream stocks usually have a higher dividend yield in the energy sector. Midstream stocks are sensitive to any changes in the interest rates.