The rally in energy prices has been wavering of late, thanks to resurging COVID-19 cases and the resultant lockdowns, mainly in Europe, which could soon spread to the other parts of the world. Demand worries led to the oil price slump for four weeks in a row last week, for first time since Mar 20.
Austria entered full lockdown from this week. This triggered the worries about another COVID-19 wave. Plus, the United States reported the
largest supply build in three weeks. Notably, oil prices had made a comeback this year on widespread vaccination, the influx of more antiviral therapies and the resultant economic reopening. WTI Crude ETF United States Oil Fund, LP ( USO Quick Quote USO - Free Report) has advanced 69.3% this year, but has dropped more than 1.6% past week and 3.7% past month.
This puts spotlight on the likely winners and losers. Winners include
iShares Transportation Average ETF ( IYT Quick Quote IYT - Free Report) , U.S. Global Jets ETF ( JETS Quick Quote JETS - Free Report) , SPDR S&P Retail ETF ( XRT Quick Quote XRT - Free Report) and VanEck Vectors Gold Miners ETF ( GDX Quick Quote GDX - Free Report) while the losers include Energy Select Sector SPDR Fund ( XLE Quick Quote XLE - Free Report) , SPDR S&P Bank ETF ( KBE Quick Quote KBE - Free Report) and VanEck Vectors Steel ETF ( SLX Quick Quote SLX - Free Report) . Gainers Transportation – iShares Transportation Average ETF ( IYT Quick Quote IYT - Free Report)
The transportation sector 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.
Retail – SPDR S&P Retail ETF ( XRT Quick Quote XRT - Free Report)
Lower energy prices are good news for retailers as consumers can have fatter wallets from energy savings and more money for discretionary spending ahead of the holiday season. This would be a much-needed relief for consumers after a long stay-at-home period.
Gold Miners– VanEck Vectors Gold Miners ETF ( GDX Quick Quote GDX - Free Report)
Low oil prices are a plus for miners. Mining companies’ 50% production costs are closely linked to energy prices. Cheap oil should work wonders for gold miners’ operating margins. In any case, gold will be in high demand due to its safe-haven status amid the resurgence of coronavirus.
Losers Oil Explorer – Energy Select Sector SPDR Fund ( XLE Quick Quote XLE - Free Report)
This is the most obvious choice. If oil price is staging a downtrend on demand issues, oil exploration and production stocks are sure to lose as these companies will be hit hard on the selling prices of the commodity they are pumping up.
Financials – SPDR S&P Bank ETF ( KBE Quick Quote KBE - Free Report)
Big banks normally raise concerns about severe economic downturns and worsening credit quality. With oil starts suffering all over again, there will likely be a rise in delinquency rates from energy companies. Though we do not expect such grave situations will be seen in the near term.
Steel – VanEck Vectors Steel ETF ( SLX Quick Quote SLX - Free Report)
Steel producers are likely to get hurt if oil prices continue to crater. The industry supplies materials to build and expand oil drilling operations. In the face of continued capex cuts by drillers, steel companies may bear the brunt.