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5 ETF Areas Set to Soar on Historic Oil Price Collapse

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Oil is experiencing the worst rout ever with the front-month WTI futures contract, which expired on Apr 21, turning negative for the first time in history on Apr 20. The pain deepened with the extended decline in June WTI and Brent contracts.

June WTI contract has plummeted to below $11 per barrel today from $20 on Apr 20 while Brent contract has collapsed to the lowest since 1999 to below $16 per barrel, down from $26 on Apr 20. Analysts expect a rerun of negative prices once again in a month’s time (read: Winning ETF Strategies to Counter Epic Oil Rout).

With the latest slide, oil price has plummeted by around 80% this year as the coronavirus pandemic brought the economy to a standstill, leading to an unprecedent fall in demand and rise in crude storage. The International Energy Agency warned of lowest oil demand in 25 years. It expects oil demand in April to fall below last year’s average by 29 million barrels per day to levels not seen since 1995. Oil demand is expected to drop 23.1 million barrels per day in the second quarter before a gradual recovery in the second half of the year.

Meanwhile, storage at Cushing — America’s key storage hub — has grown to more than 15 million barrels in the past month, up 48% since the end of February, and is expected to soon be at capacity for the first time ever. Per ClipperData Crude, stockpiles are now above 500 million barrels for the first time since June 2017. The deteriorating fundamentals have more than offset the efforts taken by OPEC and its allies to cut oil production by 9.7 million barrels a day starting on May 1 through Jun 30 to balance the oil market (read: Energy ETF, Stock Gainers Even as Crude Crashes to Below Zero).

Though negative oil price has sent shockwaves through the global energy sector, especially oil producers and explorers, it has been a blessing for a few corners of the market, including airlines, retail, consumer discretionary, oil importers and refiners. We have highlighted one ETF from these zones that is expected to benefit from lower oil price:

U.S. Global Jets ETF (JETS - Free Report)

Airlines are the biggest beneficiaries of lower oil price as fuel accounts for the major portion of their operating expenses. As such, lower oil price will likely boost their profitability, propelling JETS higher. This is a pure play ETF providing 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 $486.1 million in its asset base while charging investors 60 bps in annual fees. It has a Zacks ETF Rank #3 (Hold) with a High risk outlook.

VanEck Vectors Oil Refiners ETF (CRAK - Free Report)

Oil refiners are the only bright spot in the energy space amid declining oil price. This is because the 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 $11 million, this ETF is a one-stop shop for investors to play the oil refining market. It follows the MVIS Global Oil Refiners Index, charging 60 bps in annual fees (read: 4 Energy ETF Areas Better Positioned Amid Negative Oil).

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. XLY 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 $11.2 billion and charges 0.13% in expense ratio. The product has a Zacks ETF Rank #2 (Buy) with a Medium risk outlook.

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

Lower oil prices also bode well for the retail sector. XRT tracks the S&P Retail Select Industry Index and charges 35 bps in annual fees. The fund has AUM of $188.6 million and a Zacks ETF Rank #2 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. It has come at a time when the country is in lockdown mode curtailing economic activities. As such, cheap oil will help the government to find money for fighting COVID-19 and incentivizing the economy. INDA, an ultra-popular ETF with AUM of $2.7 billion, offers exposure to large and mid-cap companies by tracking the MSCI India Index. It charges 69 bps in annual fees and has a Zacks ETF Rank #3 (Hold) with a Medium risk outlook.

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