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Analyzing Energy ETFs This Week

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Updated

Correlation with US crude oil

On May 9–16, major energy ETFs had the following correlations with US crude oil active futures:

  • the VanEck Vectors Oil Services ETF (OIH): 90.7%
  • the SPDR S&P Oil & Gas Exploration & Production ETF (XOP): 87.3%
  • the Energy Select Sector SPDR ETF (XLE): 85.6%
  • the Alerian MLP ETF (AMLP): 11.7%

US crude oil active futures rose 1.9% in the trailing week. These ETFs have returned -0.8%, 1.8%, 1%, and 4.5%, respectively. AMLP had the lowest correlation with oil but outperformed other energy ETFs. The oil rig count at more than a one-year low is a concern for the oilfield services subsector.

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Natural gas

In the trailing week, XLE, OIH, XOP, and AMLP had correlations with natural gas active futures of 20.3%, 15.8%, 11.9%, and -0.5%, respectively. Natural gas active futures rose 1.7% during the same period. Based on the correlations, these energy ETFs might have ignored natural gas prices.

Equity markets

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

  • XLE: 99.4%
  • XOP: 98.9%
  • OIH: 93.4%
  • AMLP: 60.7%

The S&P 500 Index (SPY) rose 0.2% during this period. Given these correlations, slow movement in the broader market might have limited the upside in these energy ETFs. AMLP’s relatively lower correlation with the broader market could explain its outperformance. Earnings sentiments around midstream stocks might be behind AMLP’s lower correlation with energy commodities and the broader market.

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