Energy sector exchange traded funds are struggling in the new year as oil prices declined on increased U.S. production and potential end to the oil embargo in Iran.
Year-to-date, the Vanguard Energy ETF (NYSEArca: VDE) fell 3.7%, SPDR S&P Oil & Gas Exploration & Production ETF (NYSEArca: XOP) is down 5.5% and iShares U.S. Oil & Gas Exploration & Production ETF (NYSEArca: IEO) declined 4.2%.
Meanwhile, West Text Intermediate crude oil prices have dipped more than 6% so far this year.
Oil prices are falling as traders anticipate an end to restrictions on Iranian oil as the nuclear deal between Iran and the UN Security Council plus Germany goes into effect, reports Holly Ellyatt for CNBC.
“That event, in conjunction with other possible supply increases means that at the end of 2014 we could be in a situation where the oil price is under serious downward pressure,” Neil Atkinson, head of analysis at specialist business information service, Lloyd’s List Intelligence, said in the article.
Vanguard’s VDE has significant exposure to Exxon Mobil (NYSE: XOM) and Chevron Corp (NYSE: CVX). the two largest U.S. oil companies, at 21.9% and 12.6%, respectively. [ETF Chart of the Day: Oil Review]
The iShares’ IEO has a more spread out allocation to energy exploration and production stocks, with ConcocoPhillips (NYSE: COP) at 13.4%, followed by Phillips 66 (NYSE: PSX) at 7.4%.
The SPDR XOP ETF follows an equal-weight methodology, with the largest holding accounting for 1.6% of the overall portfolio.
Looking at the energy sector, Anadarko Petroleum (NYSE: APC) was found liable for between $5 billion and $14 billion in damages after having fraudulently spun out Tronox before the latter’s bankruptcy, reports Ben Levisohn for Barron’s. APC is 1.3% of XOP, 2.4% of VDE and 6.4% of IEO.
On the other hand, Barclay’s Thomas Driscoll and team like EOG Resources (NYSE: EOG), which accounts for 2.4% of VDE, 1.4% of XOP and 7.2% of IEO, as the company focuses on the Eagleford and Bakken shale beds to increase oil production, Barron’s reports. [Energy ETFs Look to Establish Leadership]
Vanguard Energy ETF
For more information on the energy sector, visit our energy category.