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Energy Sector: Energy Commodities Downplayed SPY’s Impact

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Correlation with US crude oil

On May 23–30, major energy ETFs had the following correlations with US crude oil active futures:

  • the Energy Select Sector SPDR ETF (XLE): 66%
  • the SPDR S&P Oil & Gas Exploration & Production ETF (XOP): 63.8%
  • the Alerian MLP ETF (AMLP): 55.9%
  • the VanEck Vectors Oil Services ETF (OIH): 48.8%

US crude oil active futures fell 2.3% in the trailing week. These ETFs fell 2.6%, 3.5%, 2.2%, and 4.1%, respectively. The oil rig count at more than a one-year low is a concern for the oilfield services subsector apart from falling oil prices. The decline in upstream stocks indicates that oil’s important to the energy sector. Usually, upstream stocks and oilfield services stocks are more sensitive to oil prices than any other energy subsector.

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Natural gas

In the trailing week, XOP, AMLP, XLE, and OIH had correlations with natural gas active futures of 99.5%, 92.1%, 69.1%, and 69.1%, respectively. Natural gas active futures fell 1.7% during the same period. Based on the correlations, oil and natural gas prices have dragged energy ETFs.

Equity markets

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

  • AMLP: 34.1%
  • XLE: 32.1%
  • XOP: 5.1%
  • OIH: -94.1%

The S&P 500 Index (SPY) fell 1.2% during this period. Given these correlations, compared to the bearishness in the broader market, energy commodities’ weakness has a significant influence on these energy ETFs.

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