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Why Energy ETFs Can’t Hold Oil Gains

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Updated

Correlation with US crude oil

On June 20–27, major energy ETFs had the following correlations with US crude oil active futures:

  • the Energy Select Sector SPDR ETF (XLE): 92.7%
  • the SPDR S&P Oil & Gas Exploration & Production ETF (XOP): 89.4%
  • the VanEck Vectors Oil Services ETF (OIH): 72.2%
  • the Alerian MLP ETF (AMLP): 68.8%

US crude oil active futures rose 4.1% in the trailing week, which might have supported or limited the downside in OIH, XOP, XLE, and AMLP. They have returned 0.9%, 0.2%, -1.1%, and -0.3%, respectively.

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Natural gas

In the trailing week, AMLP, XOP, XLE, and OIH had correlations with natural gas active futures of 38.7%, -58.8%, -62.8%, and -87.2%, respectively. Natural gas active futures have risen 7.3%. Based on the correlations and returns, most of these energy ETFs might have moved inversely to natural gas prices.

Equity markets

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

  • AMLP: -78.3%
  • XLE: -33.8%
  • OIH: -19.5%
  • XOP: -15.4%

The S&P 500 (SPY) fell 1% on June 20–27. Although these correlations suggest an inverse relationship, the broader market sentiments might have played a significant role in these energy ETFs’ slow movement despite oil’s gains. The broader market sentiments are usually more important to energy ETFs than the movement in oil prices.

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