Oil Jumps: 4 ETFs To Benefit & 4 To Suffer

Saudi Arabia offered a nice surprise to the liquid commodity, by announcing that it will continue to curb output more than required by a December deal among top producers. In early December, OPEC and Russia reached an agreement to cut output by 1.2 million barrels per day (taking October’s output level as a reference point) for the first six months of 2019 to drain supply glut and boost prices (read: Is Fresh OPEC+ Output Cut Enough to Boost Oil & Energy ETFs).

OPEC’s 14 members — before Qatar’s leaving in December — control 35% of global oil supplies and 82% of proven reserves. Saudi Arabia now plans to cut its crude oil production to 9.8 million bpd in March, per the country’s energy Minister Khalid al-Falih, in an interview with the Financial Times. This compares with more than 11 million bpd produced in November. Exports will drastically decline over this month and next, to an average of 6.9 million bpd from 8.2 million bpd in November, as quoted on oilprice.com.

The news of deepening output cuts came when the Trump administration imposed sweeping sanctions against Venezuelan state-owned oil firm Petróleos de Venezuela, S.A. PDVSA makes up nearly all of Venezuela’s exports. And U.S. sanctions came in response to the re-election of socialist President Nicolas Maduro, a vote broadly viewed as a sham (read: US Sanctions Against Venezuela? ETFs to Top & Flop).

Market Impact

Saudi’s latest plan drove WTI crude ETF United States Oil (USO) 1.4% higher on Feb 12and Brent crude ETF United States Brent Oil (AX:BNO) 1.1% higher. 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.

Gainers

Energy – SPDR S&P Oil & Gas Exploration & Production (NYSE:XOP) ETF ( (SNX: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.

Shipping – Guggenheim Shipping ETF ( (TO: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.

Norway – Global X MSCI Norway ETF (NORW)

Norway is among the top 10 nations famous for oil exports and with its comparatively low population, oil forms the key part of the country’s GDP. Per U.S. Energy Information Administration (EIA), Norway is the largest oil producer and exporter in Western Europe. The oil and gas sector makes up around 22% of Norwegian GDP and 67% of Norwegian exports. It was up 2.3% on Feb 12.

Canada – iShares MSCI Canada ETF ( (AX:EWC) )

Canada is also among the world’s top 10 oil producers. The oil, gas and mining sector makes up about over a quarter of Canada’s economy. The country is one of the world's largest producers of dry natural gas. So this country ETF is sure to benefit. It was up 1.2% on Feb 12.

Losers

Retail - SPDR S&P Retail (NYSE:XRT) 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 ( (KL: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.

India – iShares India 50 ETF ( (JK:INDY) )

India is almost entirely dependent on imports to back its oil needs. An oil price rally could thus be a major deterrent to India investing (read: After a Tough January, Can India ETFs Surge on Budget Stimulus?).

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