U.S. Markets closed

Oil and Energy ETFs That Hit All-Time Lows

Zacks Equity Research

The securities, barring safe havens, were not in any party mood this New Year. And for the already-demoralized oil, the year unfolded on a scarier note.

Brent crude plunged to a fresh 11-year low of sub-$35 a barrel and crossed its late-December decline on the way down on January 6. With this the spread between Brent crude and U.S. crude has been minimizing with the difference between the duo now being just a few cents. U.S. crude is on the verge of touching its seven-year low (read: No Respite for Oil and Energy ETFs in 2016?).

The sell-off (around 6%) marked the largest single-day decline in Brent crude since last September led by the huge U.S. gasoline pile-up and China growth worries. As per the U.S. government reading, there was a spike in motor gasoline stockpiles by 10.6 million barrels. This was the biggest supply since 1993. This data threatened the investing world which in fact ignored a 5.1-million-barrel decline in U.S. commercial crude oil inventories from last week.

Plus, China’s manufacturing output contacted for 10 successive months which complicated global growth. Notably, China – the world’s second largest economy – is one of the biggest consumers of oil. All in all, no end to ample supplies and falling demand and no production cut by OPEC sent oil in a spiral of woes. Also, Saudi Arabia decided to offer substantial oil discount to Europe lately.

Analysts viewed this move as Saudi’s intention to buck up market share rather than restraining the freefall in oil prices. Also, the scarcity of storage tanks globally leaves the future of oil in the lurch. Furthermore, a stronger greenback on Fed policy tightening poses a threat to oil prices.
These took several oil and energy-related ETFs to all-time lows on January 6. Below we highlight some of these ill-fated exchange-traded products.

Market Vectors Unconventional Oil & Gas ETF (FRAK) − Down 7% (on January 6)

The fund looks to track the performance of the largest and most liquid companies involved in the exploration, development, extraction, production, and/or refining of unconventionaloil and natural gas. FRAK was down over 41% in the last one year (as of January 6, 2015) (read: 3 Energy ETFs Down at least 20% in the Past One Month).

United States Brent Oil (BNO) − Down 5.3%

The devil here takes shape as BNO, which is designed to track the daily changes in the spot price of Brent crude oil. BNO was off 43.6% in the last one year.

United States Oil (USO) − Down 5.3%

USO is designed to track the movements of light, sweet crude oil (WTI). USO was down 45.5% in the last one year (read: Top ETF Stories of 2015).

PowerShares DB Oil ETF (DBO) − Down 4.8%

The fund follows an index composed of futures contracts on light sweet crude oil (WTI) and is intended to reflect the performance of crude oil. The fund was down 41% in the last one year.

PowerShares DB Energy ETF (DBE) − Down 4.1%

The fund offers exposure to futures contracts on some of the most heavily traded energy commodities in the world including light sweet crude oil, heating oil, Brent crude oil; RBOB Gasoline & natural gas. The fund lost 33.5% in the last one year.

iPath S&P GSCI Crude Oil TR ETN (OIL) − Down 3.9%

This index reflects the returns that are potentially available through an investment in the WTI crude oil futures. The fund lost about 48% in the last one year.

Fidelity MSCI Energy ETF (FENY) − Down 3.8%

The fund looks to track the performance of the energy sector in the U.S. equity market. The fund lost about 26%.

United States 12 Month Oil (USL) − Down 3.7%

The fund looks to reflect the daily changes of the spot price of light, sweet crude oil delivered to Cushing, Oklahoma. This is done by tracking the changes in the average of the prices of the 12 futures contracts for WTI oil, consisting of the near month and the contracts for the following 11 months for a total of 12 consecutive contracts. USL retreated 35.3% in the last one year.

Bottom Line

In short, 2016 may not be easy for oil and the related ETFs barring some occasional spikes which can be defined as corrections. Investors desperately fishing for recovery in oil should wait for geo-political threats, any crisis in the Middle-East that might threaten oil output and an improvement in global demand scenario.
 
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report >>