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Saudi Oil Attack: Sector ETF Winners and Losers

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Global oil investors received the worst shock in recent times after 10 drones attacked one of Saudi Arabia’s largest oilfields in Hijra Khurais and the world’s biggest crude processing facility at Abqaiq on Sep 14, per CNBC. Iran is being blamed by the United States for carrying out such devastation (read: ETFs to Win as Saudi's New Minister May Seek Same Oil Policy). 

State energy producer Saudi Aramco lost about 5.7 million barrels per day of output. Aramco may announce itself incapable of gratifying contracts on some international shipments -- known as force majeure -- if the recommencement of full capacity at Abqaiq takes time, per Bloomberg. Global oil prices skyrocketed to the maximum on record as the Saudi attack eliminated about 5% of global supplies.

The instant reaction to the oil price was huge. “Brent prices grew more than 19% on ICE Futures Europe to $71.95 a barrel, its biggest gain in percentage terms since 1991. Trading in WTI was frozen for a few minutes because of a so-called circuit breaker, which is triggered by a gain of more than 7%. When they finally opened, futures jumped as much as 15.5% to $63.34, the most since 2008,” per Bloomberg.

Analysts at S&P Global Platts estimated that Brent oil will likely see a $5 or $10 price surge from its current levels, which could push it to test the $70 range, as quoted on MarketWatch. Against this backdrop, it would be prudent to discuss ETFs that tend to gain on rising crude prices as well as the ones that are likely to underperform (read: Guide to 25 Most-Liquid ETFs).

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.

Defense – iShares U.S. Aerospace & Defense ETF (ITA - Free Report)

Talks are doing rounds that a fighting between Iranian and United States forces in the Gulf could be in the cards. On Sunday night, President Donald Trump said "there is reason to believe" that the White House knows the identity of the wrongdoer, and that the military is "locked and loaded" to take action.

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. Gas prices are likely to rise in the United States as Saudi Arabia's affected oil facilities are on the West Coast, which makes up about half of all of U.S. crude imports from the kingdom. Gasoline futures jumped more than 10% on Sunday trading, per Reuters. This is going to hurt consumers directly.

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.

Refineries in California depend heavily on imports from Saudi for supplies due to “its isolated location and lack of pipelines to connect it with oil-rich states such as Texas,” per Reuters.

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.

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