West Texas intermediate futures slid 5.3% Monday to $45.79 per barrel, the lowest levels since April 2009, after Goldman Sachs analysts pared its three-month forecast on Brent to $42 a barrel from $80 and WTI contracts to $41 from $70.
Additionally, the analysts reduced their overall 2015 estimates on Brent to $50.4 per barrel from $83.75 and WTI crude to $47.15 per barrel from $73.75. [Inverse ETF Plays for a Bearish Oil Outlook]
Predictably, exchange traded funds such as the United States Oil Fund (NYSEArca: USO) and the Energy Select Sector SPDR (NYSEArca: XLE) were stung by news of the Goldman price cuts, but where there are oil losers, there are some winners, too.
“Producers of petroleum, on the one hand, are expected to suffer the most, especially in terms of lost revenue. Deteriorating fiscal conditions of the major oil suppliers could not have occurred at a worse time. Having just turned the corner from the last steep drop in crude prices mirroring the collapse in global economic demand attributable to the 2008 – 2009 Great Recession, Middle Eastern, Latin American, Eastern European, African and Asian petroleum producers are facing the grim prospect of yet another contraction in budgetary trends that are likely to entail significant short- and intermediate adverse macroeconomic consequences,” said S&P Capital IQ in a recent research note.
The universe of emerging markets ETFs is littered with funds that have been punished by oil’s decline. Many emerging and frontier markets are major oil producers dependent on crude exports and a significant chunk of government. Combine those factors with the dominating presence of oil companies on scores of emerging and frontier bourses and it is easy to see why some ETFs are vulnerable to oil’s tumble. [Oil Saps Frontier ETFs]
The iShares MSCI Emerging Markets Asia ETF (NYSEArca: EEMA) is one example of an emerging markets ETF that has weathered oil’s slide. Over the past three months, the Asia-focused EEMA is up 1.8% while the MSCI Emerging Markets Index is lower by nearly 5%.
“Asian net importers of oil are projected to benefit the most from the spectacular drop in oil prices. Last year, political expediency and budgetary discipline stipulated that the governments of India, Indonesia and Malaysia opportunistically lower onerous fuel subsidies amid improving living cost patterns advanced by the downturn in oil prices,” according to S&P Capital IQ.
In addition to its 33.2% weight to China, the $122.4 million EEM allocates a combined 33% of its weight to net oil importers South Korea and India. For its part, India has frequently been highlighted as one of the prime emerging markets beneficiaries of lower crude prices.
EEMA, which S&P Capital IQ rates underweight, has another benefit. Due to its emphasis on Asian markets, the ETF’s energy sector exposure is scant at just 6.1%. That is 170 basis less than the energy weight in the MSCI Emerging Markets Index.
iShares MSCI Emerging Markets Asia ETF