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Sector ETFs to Benefit or Lose as Crude Hits 4-Year High

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Gone are those years when oil prices used to reel under pressure. United States Oil (USO - Free Report) and United States Brent Oil (BNO - Free Report) have added about 26% so far this year. WTI crude is trading around $72/barrel while Brent is hovering around the $82-mark currently.

As crude is trading around a four-year high level, the investing world must have gotten busy in re-shuffling their portfolios. Because one now needs to add oil-friendly investments, while dumping the ones that are not in sync with rising crude pieces.

The latest jump in oil prices came on the heels of Saudi Arabia and Russia refusing to increase production as suggested by the United States amid looming sanctions against Iranian oil. Investors should note that United States’ sanctions against Iran took place in August.

 

The ongoing sanctions are on trading in cars, and metals and minerals as well as buying U.S. and European aircraft. The second part of sanctions that prohibits imports of Iranian energy will take place in November (read: Oil ETFs: What You Need to Know).

JP Morgan expects Brent crude to touch $85 a barrel over the next six months — while a spike to $90 likely too. 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 ETF (XOP - Free Report)

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 (read: Best Energy ETFs & Stocks of Last Week).

Shipping – Invesco Shipping ETF (SEA - Free Report)

Notably, the energy sector accounts for about half of the Guggenheim Shipping ETF. Higher oil prices will benefit shipping companies that are needed to transport bulk of oil and gas across the country and around the world.

Losers

Retail - SPDR S&P Retail ETF (XRT - Free Report)

Rising energy prices do not bode well for retailers as consumers’ wallets get squeezed from higher outlays on gas station.

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 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 (JETS - Free Report)

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 (read: How to Prepare for Hurricane Season With ETFs & Stocks).

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