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US Sanctions Against Venezuela? ETFs to Top & Flop

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Continuing tensions between the United States and Venezuela flared up as the Trump administration said it would support Venezuelan National Assembly leader Juan Guaido after he announced himself the country’s interim president.

Soon after such support from the Trump administration, Venezuelan authoritarian President Nicolas Maduro (who has been serving since 2013) severed diplomatic relations with the United States and gave American diplomats 72 hours to leave the country.  

Notably, Maduro’s re-election as president in May 2018 — with 68% of the votes despite an approval rating of only 21% — was widely considered deceitful. The latest act of hostility increases the likelihood that the United States will expand sanctions on U.S.-Venezuelan energy trade.

Venezuela, on average, exported about 500,000 barrels of crude a day to the United States in 2018, per U.S. Energy Department data. However, such shipments declined in November to an estimated 358,000 barrels per day, per a report by Caracas-based consultancy Gas Energy Latin America, as quoted on Reuters. The U.S. share of Venezula’s exports has been on the decline in recent years with more shipments going to Russia and China.

Since shipments to the United States make up about 75% of the cash Venezuela gets for crude shipments, according to a Barclays research note published last week, if the United States cuts ties with Venezuela, the latter is likely to be in big trouble.

Fears of supply crunch drove oil prices with United States Oil (USO - Free Report) gaining about 1.1% on Jan 25. 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 trending up on reduced supplies, oil exploration and production stocks are sure to benefit as these companies will tend to pump more oil ahead.

Losers

Oil Refiners — Market 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. Gulf Coast refiners depend on Venezuelan crude a lot in addition to U.S. shale oil.

So, any kind of sanctions would hit U.S. Gulf Coast refiners materially. The biggest U.S. importers of Venezuelan crude were Citgo, Valero (VLO) and Chevron (CVX) last year, according to Rystad Energy, as quoted on cnn.com.

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 hurt earnings of airline companies.

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

Lower gasoline prices are good news for retailers as consumers can have fatter wallets from energy savings and more money for discretionary spending. So, rising energy prices are not likely to bode well for retailers.

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