Fracking ETF Frustrated by Tumbling Oil Prices

A wilting energy patch is gobbling an array of predictable victims among stocks and equity-based exchange traded funds, but one ETF could be particularly vulnerable if West Texas Intermediate futures careen past $80 per barrel.

Including Thursday’s 2.2% loss on above average volume, the United States Oil Fund (NYSEArca: USO) is off nearly 14.4% over the past three months. That combined with a 90-day tumble of over 10% for the United States Natural Gas Fund (NYSEArca: UNG) is crimping companies that are highly levered to the U.S. shale boom. [Falling Nat Gas is Killing This ETF]

The once high-flying Market Vectors Unconventional Oil & Gas ETF (NYSEArca: FRAK) is feeling the pain of lower oil prices. West Texas Intermediate, the U.S. benchmark oil contract, “is down 24 percent since June 20 and fell below $90 a barrel on Oct. 2 for the first time in 17 months,” reports Isaac Arnsdorf for Bloomberg.

With Thursday’s slide, FRAK is down about 6.6% since Oct. 2. Due to the rising cost of producing oil at U.S. shale formations, energy companies could slash output if crude prices dip below $80 per barrel. “Oil from shale formations costs $50 to $100 a barrel to produce, compared with $10 to $25 a barrel for conventional supplies from the Middle East and North Africa,” Bloomberg reported, citing the International Energy Agency.

FRAK, an ETF that is home to several stocks that earlier this year was home to several stocks that were among the best performers in the S&P 500, is highly exposed to onshore oil production. For example, the ETF allocates a combined 16% of its weight to Occidental Petroleum (NYSE: OXY) and EOG Resources (NYSE: EOG), two companies with essentially no offshore operations. EOG is one of the largest producers in the oil-rich Eagle Ford Shale in South Texas where production is soaring. [ETFs with Some of the Best S&P 500 Stocks]