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Oil prices tumble below $60 per barrel for the first time since February 2021.
The decline stems from rising OPEC and U.S. output, as well as weakening global demand.
ETFs such as JETS, CRAK, XRT, XLY and INDA are expected to benefit from lower oil prices.
Oil prices have been going through tough times. After logging the biggest monthly loss since 2021, oil prices tumbled below $60 per barrel for the first time since February 2021. The benchmark Brent crude dropped to $58.50 per barrel in early trading today while West Texas Intermediate (WTI) slipped to $55.53.
The decline is attributed to a combination of factors, including the decision to increase production by the Organization of the Petroleum Exporting Countries (OPEC), weakening demand and increasing U.S. production (read: Oil's Worst Month Since 2021: Will Energy ETFs Rebound?).
OPEC and its allies, led by Saudi Arabia and Russia, agreed to accelerate production for the second straight month. The agency is expected to increase output in June by 411,000 barrels per day. The rise is nearly three times the volume that was initially signaled by OPEC.
Recent economic data from major economies, particularly China, suggest cooling industrial activity and weaker-than-expected energy consumption. China's April manufacturing PMI fell back into contraction to 49.0, marking a 16-month low. Further, President Donald Trump’s tariffs have raised fears of a recession that will slow demand at the same time that OPEC+ is quickly increasing supply.
Meanwhile, U.S. shale producers have ramped up output significantly. Per the U.S. Energy Information Administration (EIA), U.S. oil production is expected to peak at 14 million barrels per day in 2027.
While a slump in prices is hurting oil exporting and production companies, it has been a blessing for a few zones, including airlines, retail, consumer discretionary, oil importers and refiners. We have highlighted some ETFs that are expected to benefit from lower oil prices:
Airlines are the biggest beneficiaries of lower oil prices as fuel accounts for a major portion of their operating expenses. As such, lower oil price will likely boost their profitability, propelling JETS higher. U.S. Global Jets 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 has gathered $757.1 million in its asset base while charging investors 60 bps in annual fees. It has a Zacks ETF Rank #1 (Strong Buy) with a High risk outlook (read: Travel Slump Hits Airlines: Should You Buy the Dip With ETF?).
Oil refiners are the only bright spot in the energy space amid declining oil price. This is because players in this industry use oil as an input for processing refined petroleum products. Hence, lower oil prices could result in higher margins for refiners. With AUM of $23.7 million, VanEck Oil Refiners ETF is a one-stop shop for investors to play the oil refining market. It follows the MVIS Global Oil Refiners Index, charging 62 bps in annual fees.
Lower oil prices also bode well for the retail sector. SPDR S&P Retail ETF tracks the S&P Retail Select Industry Index, which provides exposure across large, mid and small-cap stocks. It charges 35 bps in annual fees and has AUM of $120.2 million. XRT has a Zacks ETF Rank #3 (Hold) with a Medium risk outlook.
Consumer Discretionary Select Sector SPDR Fund (XLY - Free Report)
Lower oil price leads to higher consumer spending, which accounts for more than two-thirds of U.S. economic activity. The consumer discretionary sector will thus see a spike. Consumer Discretionary Select Sector SPDR Fund offers exposure to consumer discretionary stocks by tracking the Consumer Discretionary Select Sector Index. It is the largest and the most popular product in this space with AUM of $19.2 billion and charges 0.0.08% in expense ratio. The product has a Zacks ETF Rank #3 with a Medium risk outlook.
Lower oil prices are benefiting India the most as it is the world’s third-largest importer of crude oil, accounting for two-thirds of crude oil requirements. INDA, the ultra-popular ETF with AUM of $9.1 billion, offers exposure to large and mid-cap companies by tracking the MSCI India Index. It charges 62 bps in annual fees and has a Zacks ETF Rank #3 with a Medium risk outlook (read: India ETFs Bounce Back: Here's Why).
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Oil Slumps to Below $60: ETFs to Gain
Key Takeaways
Oil prices have been going through tough times. After logging the biggest monthly loss since 2021, oil prices tumbled below $60 per barrel for the first time since February 2021. The benchmark Brent crude dropped to $58.50 per barrel in early trading today while West Texas Intermediate (WTI) slipped to $55.53.
The decline is attributed to a combination of factors, including the decision to increase production by the Organization of the Petroleum Exporting Countries (OPEC), weakening demand and increasing U.S. production (read: Oil's Worst Month Since 2021: Will Energy ETFs Rebound?).
OPEC and its allies, led by Saudi Arabia and Russia, agreed to accelerate production for the second straight month. The agency is expected to increase output in June by 411,000 barrels per day. The rise is nearly three times the volume that was initially signaled by OPEC.
Recent economic data from major economies, particularly China, suggest cooling industrial activity and weaker-than-expected energy consumption. China's April manufacturing PMI fell back into contraction to 49.0, marking a 16-month low. Further, President Donald Trump’s tariffs have raised fears of a recession that will slow demand at the same time that OPEC+ is quickly increasing supply.
Meanwhile, U.S. shale producers have ramped up output significantly. Per the U.S. Energy Information Administration (EIA), U.S. oil production is expected to peak at 14 million barrels per day in 2027.
While a slump in prices is hurting oil exporting and production companies, it has been a blessing for a few zones, including airlines, retail, consumer discretionary, oil importers and refiners. We have highlighted some ETFs that are expected to benefit from lower oil prices:
ETFs to Gain
U.S. Global Jets ETF (JETS - Free Report) )
Airlines are the biggest beneficiaries of lower oil prices as fuel accounts for a major portion of their operating expenses. As such, lower oil price will likely boost their profitability, propelling JETS higher. U.S. Global Jets 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 has gathered $757.1 million in its asset base while charging investors 60 bps in annual fees. It has a Zacks ETF Rank #1 (Strong Buy) with a High risk outlook (read: Travel Slump Hits Airlines: Should You Buy the Dip With ETF?).
VanEck Oil Refiners ETF (CRAK - Free Report)
Oil refiners are the only bright spot in the energy space amid declining oil price. This is because players in this industry use oil as an input for processing refined petroleum products. Hence, lower oil prices could result in higher margins for refiners. With AUM of $23.7 million, VanEck Oil Refiners ETF is a one-stop shop for investors to play the oil refining market. It follows the MVIS Global Oil Refiners Index, charging 62 bps in annual fees.
SPDR S&P Retail ETF (XRT - Free Report)
Lower oil prices also bode well for the retail sector. SPDR S&P Retail ETF tracks the S&P Retail Select Industry Index, which provides exposure across large, mid and small-cap stocks. It charges 35 bps in annual fees and has AUM of $120.2 million. XRT has a Zacks ETF Rank #3 (Hold) with a Medium risk outlook.
Consumer Discretionary Select Sector SPDR Fund (XLY - Free Report)
Lower oil price leads to higher consumer spending, which accounts for more than two-thirds of U.S. economic activity. The consumer discretionary sector will thus see a spike. Consumer Discretionary Select Sector SPDR Fund offers exposure to consumer discretionary stocks by tracking the Consumer Discretionary Select Sector Index. It is the largest and the most popular product in this space with AUM of $19.2 billion and charges 0.0.08% in expense ratio. The product has a Zacks ETF Rank #3 with a Medium risk outlook.
iShares MSCI India ETF (INDA - Free Report)
Lower oil prices are benefiting India the most as it is the world’s third-largest importer of crude oil, accounting for two-thirds of crude oil requirements. INDA, the ultra-popular ETF with AUM of $9.1 billion, offers exposure to large and mid-cap companies by tracking the MSCI India Index. It charges 62 bps in annual fees and has a Zacks ETF Rank #3 with a Medium risk outlook (read: India ETFs Bounce Back: Here's Why).