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What Hindered Rise in Energy ETFs?

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Dec. 4 2020, Updated 10:42 a.m. ET

Correlation with US crude oil

Between March 28 and April 4, major energy ETFs had the following correlations with US crude oil active futures:

  • the Alerian MLP ETF (AMLP): 88.7%
  • the VanEck Vectors Oil Services ETF (OIH): 39.5%
  • the Energy Select Sector SPDR ETF (XLE): 24.8%
  • the SPDR S&P Oil & Gas Exploration & Production ETF (XOP): 12.2%

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US crude oil active futures rose 4.7% in the trailing week. OIH, AMLP, XLE, and XOP have returned 1.8%, 1.2%, 0.3%, and -0.3%, respectively. None of the ETFs have outperformed US crude oil. Based on correlations, XOP might have ignored oil prices. In fact, XOP was the only energy ETF to close in the red.

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Natural gas

In the trailing week, AMLP, OIH, XLE, and XOP had correlations with natural gas active futures of 69%, 60.2%, 47%, and 19.8%, respectively. Natural gas active futures fell 2.5%. The fall in natural gas might have capped the upside in these energy ETFs based on the correlations. On April 4, natural gas active futures settled at their lowest closing level since February 20.

Equity markets

Energy ETFs had the following correlations with the S&P 500 Index in the trailing week:

  • AMLP: 99.8%
  • OIH: 70.2%
  • XLE: 58.3%
  • XOP: 37.7%

The S&P 500 Index (SPY) rose 2.3% during this period. Given these correlations, the broader market might have impacted these ETFs. Usually, the sentiments in the broader market are more important to energy ETFs than oil prices.

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