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Why Energy ETFs Are Outperforming Equity Market and Oil

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Correlation with US crude oil

On May 2–9, major energy ETFs had the following correlations with US crude oil active futures:

  • the SPDR S&P Oil & Gas Exploration & Production ETF (XOP): 78.1%
  • the Energy Select Sector SPDR ETF (XLE): 56.5%
  • the VanEck Vectors Oil Services ETF (OIH): 53.9%
  • the Alerian MLP ETF (AMLP): 24.1%

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US crude oil active futures fell just 0.2% in the trailing week. These ETFs have returned 2.3%, 0.1%, -1.9%, and -2.1%, respectively. These energy ETFs had a mixed performance in this period.

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Natural gas

In the trailing week, AMLP, XLE, XOP, and OIH had correlations with natural gas active futures of 12.4%, -13.1%, -31.3%, and -34.3%, respectively. Natural gas active futures rose 0.2% during the same period. Based on the correlations, these energy ETFs might have either ignored natural gas prices or moved inversely to them.

Equity markets

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

  • XLE: 96.3%
  • OIH: 94.8%
  • XOP: 79.1%
  • AMLP: 66.7%

The S&P 500 Index (SPY) fell 1.6% during this period. Given these correlations, the broader market might have either limited the upside or dragged these energy ETFs down. Usually, the sentiments in the broader market are more important to energy ETFs than oil prices. Despite the significant magnitude of correlations with the broader market and oil, earnings expectations around energy stocks might have supported most of these energy ETFs.

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