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Higher Oil Prices to Spell Trouble for These Country ETFs
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The year 2018 can be remembered for the crude rally. WTI crude ETF United States Oil (USO - Free Report) and Brent crude ETF United States Brent Oil (BNO - Free Report) have gained about 25% this year. Reduction in supplies, thanks to the OPEC output cut deal, and crisis in Venezuela initially boosted the price. Now, U.S. President Donald Trump’s imposition of sanctions on Iran’s energy sector starting November is likely to reduce supply further and drive prices.
While the oil price strength bodes well for a host of oil-producing countries, it is quite a dampener for oil-importing or consuming nations. Higher oil prices will weigh on GDP growth of such countries as imports will become costlier. It will lead to widening trade deficits, lower output and higher inflation for these countries.
In this regard, we have highlighted a few country ETFs that could see stressful trading in the months ahead if Brent crude oil price rises or remains above $80 a barrel.
India is almost entirely dependent on imports for its oil needs. Already, the country has been witnessing a rise in oil import bills, thanks to an uptick in global crude oil prices. India's oil import bill jumped 52% to $11.83 billion in August. A $10 a barrel uptick in crude prices can push up inflation by nearly 30 basis points and thwart growth by 10 bps, per Bloomberg.
Though the fundamentals of Indian economy are pretty strong right now, higher oil prices and a strong greenback might dent this fund in the near term. The fund tracks the Nifty 50 Index, which looks to track the 50 largest publicly traded Indian companies (read: Are India ETFs No More a Hot Investing Spot?).
Normally, Turkey’s 90% of the crude requirements are satisfied by imports. Iran is one of the biggest crude oil exporters for Turkey. However, the country is striving to reduce its energy imports. For example, Turkey's energy imports declined 28.2% in 2016 from 2015.
Still, the country is suffering from higher inflation. Its currency lira has been reeling under pressure against the U.S. dollar. The Turkish lira has been heavily abandoned by traders. Against this backdrop, an $80-oil is a negative for Turkey investing (read: Are Good Times Over for Emerging Market ETFs?).
Japan was the second-largest net importer of fossil fuels in the world in 2012, after China. The Fukushima nuclear disaster in 2011 led the country to move to oil and natural gas, per eia.com. Japan's liquefied petroleum gas imports from the United States probably doubled in 2017. So, the country, though much stable from a currency and economic point of view, may face some trouble owing to the jump in crude price.
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Higher Oil Prices to Spell Trouble for These Country ETFs
The year 2018 can be remembered for the crude rally. WTI crude ETF United States Oil (USO - Free Report) and Brent crude ETF United States Brent Oil (BNO - Free Report) have gained about 25% this year. Reduction in supplies, thanks to the OPEC output cut deal, and crisis in Venezuela initially boosted the price. Now, U.S. President Donald Trump’s imposition of sanctions on Iran’s energy sector starting November is likely to reduce supply further and drive prices.
While the oil price strength bodes well for a host of oil-producing countries, it is quite a dampener for oil-importing or consuming nations. Higher oil prices will weigh on GDP growth of such countries as imports will become costlier. It will lead to widening trade deficits, lower output and higher inflation for these countries.
In this regard, we have highlighted a few country ETFs that could see stressful trading in the months ahead if Brent crude oil price rises or remains above $80 a barrel.
iShares India 50 ETF (INDY - Free Report)
India is almost entirely dependent on imports for its oil needs. Already, the country has been witnessing a rise in oil import bills, thanks to an uptick in global crude oil prices. India's oil import bill jumped 52% to $11.83 billion in August. A $10 a barrel uptick in crude prices can push up inflation by nearly 30 basis points and thwart growth by 10 bps, per Bloomberg.
Though the fundamentals of Indian economy are pretty strong right now, higher oil prices and a strong greenback might dent this fund in the near term. The fund tracks the Nifty 50 Index, which looks to track the 50 largest publicly traded Indian companies (read: Are India ETFs No More a Hot Investing Spot?).
iShares MSCI Turkey ETF (TUR - Free Report)
Normally, Turkey’s 90% of the crude requirements are satisfied by imports. Iran is one of the biggest crude oil exporters for Turkey. However, the country is striving to reduce its energy imports. For example, Turkey's energy imports declined 28.2% in 2016 from 2015.
Still, the country is suffering from higher inflation. Its currency lira has been reeling under pressure against the U.S. dollar. The Turkish lira has been heavily abandoned by traders. Against this backdrop, an $80-oil is a negative for Turkey investing (read: Are Good Times Over for Emerging Market ETFs?).
iShares MSCI Japan ETF (EWJ - Free Report)
Japan was the second-largest net importer of fossil fuels in the world in 2012, after China. The Fukushima nuclear disaster in 2011 led the country to move to oil and natural gas, per eia.com. Japan's liquefied petroleum gas imports from the United States probably doubled in 2017. So, the country, though much stable from a currency and economic point of view, may face some trouble owing to the jump in crude price.
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 >>