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After an extreme volatile ride last week, WTI crude oil again started plunging to start this week. Oil prices have been downbeat for quite some time thanks to poor demand emanating from the coronavirus-led lockdowns and a price war between Saudi Arabia and Russia over the decision to prolong of the output cut deal.
Although Saudi and Russia finally put an end to their row and agreed on the biggest OPEC+ output cut deal in mid-April, oil continued to slump on storage crisis. WTI suffered more than the Brent. On Apr 20, May WTI crude futures dropped to below zero for the first time in history.
However, the liquid commodity recovered at the end of the last week on the back of earlier-than-scheduled output cuts by some OPEC producers and Middle East tensions, only to slump again on Apr 27 (read: OPEC Output Deal Cut: Will It Help Oil & Energy ETFs?).
U.S. crude’s June contracts lost about 24% on Apr 27 at the time of writing as global oil storage — both offshore and onshore — is fast reaching its capacity.Demand for oil in April is forecast to decline by a record 29 million b/d, per the International Energy Agency.
With this, oil is now trading at about $12 per barrel (bbl), down from $60/bbl at the start of the year. WTI crude ETF United States Oil Fund, LPUSO and Brent ETF United States Brent Oil Fund, LP BNOwere off 55% and 31.3% in the past month.
No doubt such a situation is a huge negative for oil-rich nations while is a big plus for oil-importing countries. In fact, oil importing countries received a nice opportunity to fill their reservoirs under the strategic petroleum reserves (SPR) (read: Winning ETF Strategies to Counter Epic Oil Rout).
As we all know, ETFs offer a great opportunity while it comes to playing a particular nation. In light of this, we have highlighted a few country ETFs that could shoot up in the days ahead should oil price tumble and those that are likely to take a massive beating.
Losers
VanEck Vectors Russia ETF
Oil — seemingly the main commodity of Russia — poses huge risks to the nation. About half of Russia’s exports in terms of value come from oil and natural gas as the country has the third-largest oil reserve in the world and the biggest natural gas reserve. This makes it clear why Russia’s economy is highly dependent on oil price movement.
So, the plunge in oil prices will likely make investors hesitate before investing in Russia. In fact, subdued oil prices and a stronger U.S. dollar may put pressure on the Russian currency ruble. RSX is the most popular and liquid option in the space. The energy sector accounts for about 40% of RSX, which charges 65 basis points as expenses.
Norway is among the top 10 nations famous for oil exports. With its comparatively low population, oil forms the key part of the country’s GDP. Norway is one of the largest oil producers and exporters in Western Europe. The oil and gas sector constituted around 18% of Norwegian GDP and 62% of Norwegian exports in 2018.
The most popular way to play the country is with NORW. The product tracks the MSCI Norway IMI 25/50 Index, a benchmark of 61 companies that focuses on Norway, charging investors 50 basis points a year in fees. The ETF has 20.5% weight in the energy sector.
Who can miss the defecto leader of OPEC? The country is the world’s biggest oil exporter. Though the fund has a meagre 6.8% exposure to energy, it puts a heavy 40.6% weight in the financials sector. For a country which is as oil-rich as Saudi is, financial market would not be free from oil impact.
India, which hosts 1.3 billion people, is the world’s third-largest oil consumer and imports about 80% of its oil requirements. Hence, having taken advantage of the prevailing damn-cheap oil prices, the country is stockpiling on the liquid commodity as part of its strategic petroleum reserves (SPRs).
China, the world’s biggest energy consumer, is also building up its stockpiles of crude. Imports increased 4.5% year over year in March even as the economy was shut down. Imports form about half of China’s oil consumption. Half of the imports comes from the Middle East, while Russia, Southeast Asia and Africa account for the rest, as quoted on MarketWatch.
Japan is yet another country that has resorted to SPR. Japan’s SPR is 528 million barrels, per S&P Global Platts. Japan could even witness about 13 million barrels of surplus crude supply over domestic demand in June amid feeble demand. The second-largest Japanese refiner expects domestic oil products demand to plummet by around 20% from a year ago over April-June.
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Crude Plunges Again: Country ETFs to Win/Lose
After an extreme volatile ride last week, WTI crude oil again started plunging to start this week. Oil prices have been downbeat for quite some time thanks to poor demand emanating from the coronavirus-led lockdowns and a price war between Saudi Arabia and Russia over the decision to prolong of the output cut deal.
Although Saudi and Russia finally put an end to their row and agreed on the biggest OPEC+ output cut deal in mid-April, oil continued to slump on storage crisis. WTI suffered more than the Brent. On Apr 20, May WTI crude futures dropped to below zero for the first time in history.
However, the liquid commodity recovered at the end of the last week on the back of earlier-than-scheduled output cuts by some OPEC producers and Middle East tensions, only to slump again on Apr 27 (read: OPEC Output Deal Cut: Will It Help Oil & Energy ETFs?).
U.S. crude’s June contracts lost about 24% on Apr 27 at the time of writing as global oil storage — both offshore and onshore — is fast reaching its capacity.Demand for oil in April is forecast to decline by a record 29 million b/d, per the International Energy Agency.
With this, oil is now trading at about $12 per barrel (bbl), down from $60/bbl at the start of the year. WTI crude ETF United States Oil Fund, LP USO and Brent ETF United States Brent Oil Fund, LP BNO were off 55% and 31.3% in the past month.
No doubt such a situation is a huge negative for oil-rich nations while is a big plus for oil-importing countries. In fact, oil importing countries received a nice opportunity to fill their reservoirs under the strategic petroleum reserves (SPR) (read: Winning ETF Strategies to Counter Epic Oil Rout).
As we all know, ETFs offer a great opportunity while it comes to playing a particular nation. In light of this, we have highlighted a few country ETFs that could shoot up in the days ahead should oil price tumble and those that are likely to take a massive beating.
Losers
VanEck Vectors Russia ETF
Oil — seemingly the main commodity of Russia — poses huge risks to the nation. About half of Russia’s exports in terms of value come from oil and natural gas as the country has the third-largest oil reserve in the world and the biggest natural gas reserve. This makes it clear why Russia’s economy is highly dependent on oil price movement.
So, the plunge in oil prices will likely make investors hesitate before investing in Russia. In fact, subdued oil prices and a stronger U.S. dollar may put pressure on the Russian currency ruble. RSX is the most popular and liquid option in the space. The energy sector accounts for about 40% of RSX, which charges 65 basis points as expenses.
Global X MSCI Norway ETF (NORW - Free Report)
Norway is among the top 10 nations famous for oil exports. With its comparatively low population, oil forms the key part of the country’s GDP. Norway is one of the largest oil producers and exporters in Western Europe. The oil and gas sector constituted around 18% of Norwegian GDP and 62% of Norwegian exports in 2018.
The most popular way to play the country is with NORW. The product tracks the MSCI Norway IMI 25/50 Index, a benchmark of 61 companies that focuses on Norway, charging investors 50 basis points a year in fees. The ETF has 20.5% weight in the energy sector.
iShares MSCI Saudi Arabia ETF (KSA - Free Report)
Who can miss the defecto leader of OPEC? The country is the world’s biggest oil exporter. Though the fund has a meagre 6.8% exposure to energy, it puts a heavy 40.6% weight in the financials sector. For a country which is as oil-rich as Saudi is, financial market would not be free from oil impact.
Winners
iShares India 50 ETF (INDY - Free Report)
India, which hosts 1.3 billion people, is the world’s third-largest oil consumer and imports about 80% of its oil requirements. Hence, having taken advantage of the prevailing damn-cheap oil prices, the country is stockpiling on the liquid commodity as part of its strategic petroleum reserves (SPRs).
In March, the Confederation of Indian Industry indicated that the country would save a solid $45 billion on oil imports next financial year. Since then, the pricing crash has aggravated. Hence, the favorable impact on India’s foreign currency reserves should be more pronounced (read: Should You Buy India ETFs on "Best G-20 Growth" & Oil Savings?).
iShares China Large-Cap ETF (FXI - Free Report)
China, the world’s biggest energy consumer, is also building up its stockpiles of crude. Imports increased 4.5% year over year in March even as the economy was shut down. Imports form about half of China’s oil consumption. Half of the imports comes from the Middle East, while Russia, Southeast Asia and Africa account for the rest, as quoted on MarketWatch.
iShares MSCI Japan ETF (EWJ - Free Report)
Japan is yet another country that has resorted to SPR. Japan’s SPR is 528 million barrels, per S&P Global Platts. Japan could even witness about 13 million barrels of surplus crude supply over domestic demand in June amid feeble demand. The second-largest Japanese refiner expects domestic oil products demand to plummet by around 20% from a year ago over April-June.
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 >>