Falling oil prices have mauled energy ETFs but provided a lift to some sector funds tracking different areas of the economy.
Crude oil prices have slumped over 20% from the 2012 high to under $82 a barrel.
“Currently, crude oil stocks sit at the upward bound of their historic range. For much of the past year they sat well above that range. The supply glut is due, in large part, to the addition of Canadian production to the Cushing Oklahoma oil hub and the ongoing proliferative use of horizontal drilling techniques that allow for substantially higher well saturation than had been possible in decades past,” Abraham Bailin for Morningstar wrote in a recent analysis.
Overall global energy demand is low, and the U.S. Federal Reserve is showing no signs of a QE 3. Other factors anchoring crude oil prices are the large U.S. stockpiles that are at about 385 million barrels. Trang Ho for Investor’s Business Daily reports that these stockpiles are at 22-year highs and better relations with Iran also supports a supply glut.
Falling oil and energy prices have the ability to lift other areas of the stock market. This movement proves that the commodities market is not as highly correlated the equities market, indicating their diversification benefits.