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Nov 9, 2018

Energy ETFs slide as crude losing streak hits record

Keystone XL setback a 'nail in the coffin' for oil prices: Quill Intelligence CEO

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The longest slump ever for oil is finally taking a toll on energy exchange-traded funds.

With WTI crude heading for a 10th consecutive daily decline and briefly tumbling below US$60 a barrel on Friday, the US$1.4 billion iShares Global Energy ETF, ticker IXC, was down 1 per cent, the US$2.8 billion SPDR S&P Oil & Gas Exploration & Production ETF, ticker XOP, declined 0.7 per cent, and the US$16 billion Energy Select Sector SPDR, XLE, slipped 0.6 per cent in afternoon trading.

Until now, energy funds have been slow to react to oil’s slide, with XLE gaining in six of the last 10 sessions and XOP climbing in five. Crude prices have fallen around 11 per cent over that same period.

“Weaker oil prices negatively impacts demand for energy ETFs and the stocks inside,” said Todd Rosenbluth, director of ETF research at CFRA Research. “In particular, drilling funds like XOP are highly sensitive as the holdings are dependent on growing demand for oil.”

Oil has been on a wild ride over the last six weeks, rocketing past US$75 and then falling more than 20 per cent from its October high. The collapse in prices comes on the back of record U.S. crude production and output from the Organization of the Petroleum Exporting Countries reaching its highest level in years. The retreat is putting pressure on OPEC and its allies, who are scheduled to meet in Abu Dhabi this weekend, to cut supply again.

“If we get that headline anytime soon, you’ll see another spike up in oil prices,” Scott Gecas, chief market strategist at Long Leaf Trading, said on Bloomberg TV. “If we don’t get anything, we’re going to continue to slide.”

Some of the biggest losers in the energy sector Friday -- including Halliburton Co., Exxon Mobil Corp., Marathon Petroleum Corp. -- are held by both XLE and IXC. Exxon, which is the largest position in the two funds, slumped nearly 1.5 per cent. Marathon, meanwhile, sank 1.3 per cent.