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Sector ETFs to Top & Flop on Higher Oil Prices

Sanghamitra Saha
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Just as crude oil hits the $70-mark for the first time since November 2014, the investing world must have gotten busy in re-shuffling their portfolios. Because one now needs to add oil-friendly investments while dumping the ones that are not in sync with rising crude pieces (read: 4 Country ETFs That Should be Beneficiaries of $70 Oil).

Troubles in Venezuelan oil company PDVSA, the country’s declining crude production in recent years and U.S. President Donald Trump’s imposition of sanctions on Iran have given a boost to the liquid commodity in recent trading. In fact, the end of the U.S.-Iran nuke deal could see Iranian oil being reduced by 200,000 to 300,000 bpd, per analysts at RBC Capital Markets.

Moreover, there are chances of an extended output cut deal for the coming 10 or 20 years thanks to the initiative between OPEC member nations and Russia. As per sources, OPEC top brass and the biggest exporter, Saudi Arabia, wants oil to push to the level of $80 or even $100. This indicates Saudi’s intension of making no changes in the ongoing output cut deal that started in January 2017 (read: Why to Consider Leveraged Oil ETFs Now).

Against this backdrop, it would be prudent to discuss sector ETFs that tend to gain on rising crude prices as well as the ones that are likely to underperform.


Energy –  SPDR S&P Oil & Gas Exploration & Production ETF XOP

This is the most obvious choice. If oil price is staging an uptrend on reduced supplies, oil exploration and production stocks are sure to benefit as these companies will tend to pump more oil ahead (read: Oil Price Jumps on Syria Turmoil: ETFs & Stocks to Trade).

Shipping – Guggenheim Shipping ETF SEA

Notably, the energy sector accounts for about half of the Guggenheim Shipping ETF. Higher oil prices will benefit shipping companies that are used to transport bulk of oil and gas across the country and around the world.


Retail - SPDR S&P Retail ETF XRT

Lower gasoline prices are good news for retailers as consumers can have fatter wallets from energy savings and more money for discretionary spending. So, rising energy prices are not likely to bode well for retailers.

Oil Refiners – Market Vectors Oil Refiners ETF CRAK

Companies in the refining segment benefit from lower oil prices as crude is one of their main input costs. After taking crude, refiners transform it to the finished product gasoline. Now with crude prices rising, refiners may see a lower crack spread and their profitability may be hurt.

Airlines - U.S. Global Jets ETF JETS

The airline sector also performs better in a falling crude scenario. This is especially true as energy costs form a major portion of the overall costs of this sector. So, rising crude prices are likely to curb earnings of airline companies (read: Airline ETF Flies Low on Mixed Q1: A Good Entry Point?).

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SPDR-SP RET ETF (XRT): ETF Research Reports
SPDR-SP O&G EXP (XOP): ETF Research Reports
VANECK-OIL REF (CRAK): ETF Research Reports
GUGG-SHIPPING (SEA): ETF Research Reports
US GLOBAL JETS (JETS): ETF Research Reports
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