Breaking News
0
Ad-Free Version. Upgrade your Investing.com experience. Save up to 40% More details

ETFs To Gain & Lose From Higher Oil Price

By Zacks Investment ResearchStock MarketsJan 06, 2020 10:00PM ET
www.investing.com/analysis/etfs-to-gain--lose-from-higher-oil-price-200496967
ETFs To Gain & Lose From Higher Oil Price
By Zacks Investment Research   |  Jan 06, 2020 10:00PM ET
Saved. See Saved Items.
This article has already been saved in your Saved Items
 

Oil price surged following escalation of tensions in the Middle East. Brent surged to about $70 per barrel — its highest price since September – while U.S. crude climbed to $63.79 per barrel — its highest price since April (read: 5 ETFs to Profit From Rise in Middle East Tension).

The U.S. air strike near the Baghdad International Airport killed top Iranian commander Qasem Soleimani last week sparking fears of a full-blown crisis between Washington and Tehran. Iran’s President Hassan Rouhani said that the country would no longer abide by any limits on its enrichment of uranium and Iraq’s parliament voted to expel U.S. troops from the country. On the other hand, President Donald Trump threatened Tehran that America will hit Iran "harder than they have ever been hit before" if it carried out retaliatory attacks or expelled U.S. troops from the country.

Further, the Fed’s dovish outlook, which pushed the U.S. dollar down, also supported a spike in oil price. Notably, a weak dollar made dollar-denominated assets cheap for foreign investors, potentially raising demand for commodities.

Higher Oil Price: A Boon or Bane?

Higher oil price is a boon to energy stocks, especially producers and explorers, who derive most of their revenues from selling the crude that they extract. This is because the cost of oil production or extraction remains low as companies look to lock in supply contracts at higher prices. The gap between production cost and selling price keeps on rising when oil price surges, leading to fat profit margins and thus pushes up a company’s share price. The oil producing nations thus also get a boost (read: Top-Performing Energy ETFs & Stocks of 2019).

While almost every corner of the energy segment is shining, oil refiners might be hit. This is because the players in this industry use oil as an input for processing refined petroleum products. Hence, higher oil prices crimp margins for refiners, leading to weak stock prices.

Further, higher oil price increase gasoline and jet prices. The resultant inflationary pressure will raise the price of products, leading to reduced consumer spending, which accounts for more than two-thirds of U.S. economic activity. The discretionary and retail sectors will thus bear the brunt.

Apart from these, higher oil price is a major threat to oil-consuming nations like India, Turkey and South Africa. After all, higher oil prices restrict tax revenues or GDP growth opportunities in big oil-importing countries. This is because imports become more expensive and exports less valuable. It will lead to deterioration in balance of payments, lower output, and increase in inflation and unemployment rate in these countries, thereby thwarting overall economic growth.

Given this, we have highlighted ETFs that are expected to benefit/lose from higher oil price:

ETFs to Gain

VanEck Vectors Oil Services ETF (CA:OIH)


This fund tracks the MVIS U.S. Listed Oil Services 25 Index, which offers exposure to companies involved in oil services to the upstream oil sector, including oil equipment, oil services or oil drilling. With AUM of $779.8 million, it holds 25 stocks in its basket and charges 35 bps in annual fees. However, the product has a Zacks ETF Rank #5 (Strong Sell) with a High risk outlook. As the Zacks rank system takes into account asset class outlook, which is negative for energy, most ETFs in this space have #4 (Sell) or #5 ranks.

SPDR S&P Oil & Gas Exploration & Production (NYSE:XOP) ETF (XOP)

This fund provides exposure to oil and gas exploration companies by tracking the S&P Oil & Gas Exploration & Production Select Industry Index. It has amassed $2.7 billion and holds 59 securities in its basket. The product charges 35 bps in annual fees and has a Zacks ETF Rank #5 with a High risk outlook.

VanEck Vectors Russia ETF RSX

This product offers exposure to 27 publicly traded companies that are incorporated in Russia or outside but have at least 50% of their revenues/related assets in Russia. It follows the MVIS Russia Index, charging investors 65 bps in annual fees. RSX is popular and liquid with AUM of $1.3 billion and has a Zacks ETF Rank #3 (Hold) with a High risk outlook (read: Country ETFs to Top/Flop on US Air Raid at Baghdad).

ETFs to Lose

U.S. Global Jets ETF (KL:JETS)


This pure-play ETF provides exposure to the global airline industry, including airline operators and manufacturers from all over the world, by tracking the U.S. Global Jets Index. The product holds 34 securities. The fund has gathered $51.5 million in its asset base while charging investors 60 bps in annual fees. It has a Zacks ETF Rank #3 with a High risk outlook.

VanEck Vectors Oil Refiners ETF CRAK

With AUM of $34.6 million, this ETF is a one-stop shop for investors to play the oil refining market. It follows the MVIS Global Oil Refiners Index, holding 25 stocks. The product charges 60 bps in annual fees (read: Iraq Attack: Sector ETF Winners and Losers).

SPDR S&P Retail (NYSE:XRT) ETF XRT

XRT targets the retail sector and tracks the S&P Retail Select Industry Index. It is home to 87 stocks in its basket and charges 35 bps in annual fees. The fund has AUM of $219.9 million and has a Zacks ETF Rank #2 (Buy) with a Medium risk outlook.

iShares India 50 ETF (JK:INDY)

This ETF provides exposure to the largest 50 Indian stocks by tracking the Nifty 50 Index. It has managed assets worth $788.1 million and is a high-cost choice in the space, charging 94 bps in annual fees. INDY has a Zacks ETF Rank #3 with a Medium risk outlook.

Want key ETF info delivered straight to your inbox?

Zacks’ free Fund Newsletter will brief you on top news and analysis, as well as top-performing ETFs, each week. Get it free >>



VanEck Vectors Russia ETF (RSX): ETF Research Reports

SPDR S&P Retail ETF (XRT): ETF Research Reports

iShares India 50 ETF (INDY): ETF Research Reports

U.S. Global Jets ETF (JETS): ETF Research Reports

VanEck Vectors Oil Services ETF (OIH): ETF Research Reports

VanEck Vectors Oil Refiners ETF (CRAK): ETF Research Reports

Original post

Zacks Investment Research

ETFs To Gain & Lose From Higher Oil Price
 

Related Articles

Craig Erlam
A Disappointing End To The Week By Craig Erlam - Jul 30, 2021

Stock markets have turned negative on the final trading day of the week, with Europe tracking Asia lower and U.S. markets expected to follow. Whether this is the start of a late...

ETFs To Gain & Lose From Higher Oil Price

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with other users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind:  

  •            Enrich the conversation, don’t trash it.

  •           Stay focused and on track. Only post material that’s relevant to the topic being discussed. 

  •           Be respectful. Even negative opinions can be framed positively and diplomatically. Avoid profanity, slander or personal attacks directed at an author or another user. Racism, sexism and other forms of discrimination will not be tolerated.

  • Use standard writing style. Include punctuation and upper and lower cases. Comments that are written in all caps and contain excessive use of symbols will be removed.
  • NOTE: Spam and/or promotional messages and comments containing links will be removed. Phone numbers, email addresses, links to personal or business websites, Skype/Telegram/WhatsApp etc. addresses (including links to groups) will also be removed; self-promotional material or business-related solicitations or PR (ie, contact me for signals/advice etc.), and/or any other comment that contains personal contact specifcs or advertising will be removed as well. In addition, any of the above-mentioned violations may result in suspension of your account.
  • Doxxing. We do not allow any sharing of private or personal contact or other information about any individual or organization. This will result in immediate suspension of the commentor and his or her account.
  • Don’t monopolize the conversation. We appreciate passion and conviction, but we also strongly believe in giving everyone a chance to air their point of view. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at Investing.com’s discretion.

Write your thoughts here
 
Are you sure you want to delete this chart?
 
Post
Post also to:
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
 
Are you sure you want to delete this chart?
 
Post
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's Investing.com's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.
Continue with Google
or
Sign up with Email