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4 Sector ETFs to Gain as US Crude at Lowest Since June
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On Wednesday, U.S. crude oil experienced a sharp 4% decline, marking its lowest price since late June. Alongside, retail gasoline prices in the United States have slumped to their lowest since January, indicating a notable shift just before the holiday season's surge in shopping and travel, as quoted on CNBC.
Both U.S. crude and the global benchmark have been on a downward trend for five successive days. This decline occurs despite OPEC+'s attempts to increase prices by promising to cut supply in early 2024.
Inside the Weakness in the Oil Patch
Oil prices have been falling steadily from their September highs, influenced by increased crude production outside OPEC+ (notably in the U.S.) and concerns over the health of the Chinese economy. Moody's recently downgraded China's government credit rating outlook to negative, further impacting the market.
There was a brief spike in crude prices in mid-October amid the Israel-Hamas conflict. However, the market has since downplayed the risk of a broader regional war that could affect global oil supply chain.
Mixed U.S. Data on Oil Demand
Recent U.S. data offered a mixed picture of oil demand, with crude inventories falling but gasoline stocks rising. The Energy Information Agency reported a 4.6-million-barrel decrease in crude inventories and a 5.4-million-barrel increase in gasoline stocks for the week ending December 1.
Uncertainty Over OPEC+ Supply Cuts
Oil traders remain unsure about OPEC+'s commitment to reducing supply by 2.2 million barrels per day (bpd) in the next quarter. This skepticism persists despite several OPEC+ members volunteering for cuts after failing to agree on production targets. Several OPEC+ members announced the voluntary cuts last week after the group failed to unite on the agreement on production targets.
Saudi Energy Minister Prince Abdulaziz bin Salman and Russian Deputy Prime Minister Alexander Novak have tried to reassure the oil market about prolonging or intensifying the promised cuts. However, according to Tamas Varga of PVM Oil Associates, these assurances have been largely ignored by traders, as quoted on CNBC.
ETFs to Gain
Against this backdrop, below we highlight a few ETF investing areas that could gain from the decline in oil prices.
In the United States, retail gasoline prices have also decreased, following the trend of crude oil prices. As of Wednesday, the average price per gallon dropped to $3.22, the lowest since January 3, as reported by AAA. This price drop could boost the demand and profitability of the transportation sector, especially ahead of the holiday season which sees considerable leisure travel.
Falling energy prices bode well for retailers as consumers will spending less at gas stations. In fact, not only oil, overall inflation is falling, boosting consumers’ buying power. This, in turn, is likely to lead the Fed to stay put or cut rates. Falling rates, in turn, would again boost consumers’ ability to shell out on discretionary items.
Companies in the refining segment benefit from lower oil prices as crude is one of their main input costs. After buying crude, refiners transform it to the finished product gasoline. Now, with crude prices falling, refiners may see a higher crack spread and their profitability may be increased.
Mining companies’ 50% of production costs are closely linked to energy prices. A slide in oil prices and moderate rebound in economic activity should work wonders for gold miners’ operating margins.
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4 Sector ETFs to Gain as US Crude at Lowest Since June
On Wednesday, U.S. crude oil experienced a sharp 4% decline, marking its lowest price since late June. Alongside, retail gasoline prices in the United States have slumped to their lowest since January, indicating a notable shift just before the holiday season's surge in shopping and travel, as quoted on CNBC.
Both U.S. crude and the global benchmark have been on a downward trend for five successive days. This decline occurs despite OPEC+'s attempts to increase prices by promising to cut supply in early 2024.
Inside the Weakness in the Oil Patch
Oil prices have been falling steadily from their September highs, influenced by increased crude production outside OPEC+ (notably in the U.S.) and concerns over the health of the Chinese economy. Moody's recently downgraded China's government credit rating outlook to negative, further impacting the market.
There was a brief spike in crude prices in mid-October amid the Israel-Hamas conflict. However, the market has since downplayed the risk of a broader regional war that could affect global oil supply chain.
Mixed U.S. Data on Oil Demand
Recent U.S. data offered a mixed picture of oil demand, with crude inventories falling but gasoline stocks rising. The Energy Information Agency reported a 4.6-million-barrel decrease in crude inventories and a 5.4-million-barrel increase in gasoline stocks for the week ending December 1.
Uncertainty Over OPEC+ Supply Cuts
Oil traders remain unsure about OPEC+'s commitment to reducing supply by 2.2 million barrels per day (bpd) in the next quarter. This skepticism persists despite several OPEC+ members volunteering for cuts after failing to agree on production targets. Several OPEC+ members announced the voluntary cuts last week after the group failed to unite on the agreement on production targets.
Saudi Energy Minister Prince Abdulaziz bin Salman and Russian Deputy Prime Minister Alexander Novak have tried to reassure the oil market about prolonging or intensifying the promised cuts. However, according to Tamas Varga of PVM Oil Associates, these assurances have been largely ignored by traders, as quoted on CNBC.
ETFs to Gain
Against this backdrop, below we highlight a few ETF investing areas that could gain from the decline in oil prices.
Transportation - SPDR S&P Transportation ETF (XTN - Free Report)
In the United States, retail gasoline prices have also decreased, following the trend of crude oil prices. As of Wednesday, the average price per gallon dropped to $3.22, the lowest since January 3, as reported by AAA. This price drop could boost the demand and profitability of the transportation sector, especially ahead of the holiday season which sees considerable leisure travel.
Retail - SPDR S&P Retail ETF (XRT - Free Report)
Falling energy prices bode well for retailers as consumers will spending less at gas stations. In fact, not only oil, overall inflation is falling, boosting consumers’ buying power. This, in turn, is likely to lead the Fed to stay put or cut rates. Falling rates, in turn, would again boost consumers’ ability to shell out on discretionary items.
Oil Refiners – VanEck Vectors Oil Refiners ETF (CRAK - Free Report)
Companies in the refining segment benefit from lower oil prices as crude is one of their main input costs. After buying crude, refiners transform it to the finished product gasoline. Now, with crude prices falling, refiners may see a higher crack spread and their profitability may be increased.
Gold Mining – VanEck Vectors Junior Gold Miners ETF (GDXJ - Free Report)
Mining companies’ 50% of production costs are closely linked to energy prices. A slide in oil prices and moderate rebound in economic activity should work wonders for gold miners’ operating margins.