ETF Trends
ETF Trends

Exchange traded fund investors are exiting energy sector bets for the first time in eight months after oil prices rebounded off a six-year low.

Investors have yanked over $1.55 billion from energy stocks exchange traded funds, setting up the first monthly outflows from the sector since October, reports Jim Polson for Bloomberg.

Month-to-date, the Energy Select Sector SPDR (NYSEArca: XLE) experienced $628.6 million in net outflows, Vanguard Energy ETF (NYSEArca: VDE) lost $9.5 million and iShares U.S. Energy ETF (NYSEArca: IYE) saw $533.2 million in outflows, according to ETF.com.

Meanwhile, investors pulled $368.1 million out of the United States Oil Fund (NYSEArca: USO), which tracks West Texas Intermediate crude oil futures, and redeemed $14.0 million from United States Brent Oil Fund (NYSEArca: BNO) so far this month.

Crude oil has been falling off after the early May highs, with WTI crude oil futures now trading around $57.2 per barrel and Brent crude at $62.2 per barrel.

“The thesis that oil is too cheap and it has to go higher maybe is not as compelling a case with oil at $60 as it was when it was at $42,” Ryan Issakainen, a strategist at First Trust Advisors LP, said in the article.

Nevertheless, energy ETFs have still attracted $5.4 billion in net inflows year-to-date, which suggests that the recent selling is attributed to some good old-fashioned profit taking. For instance, energy ETFs’ lost $475.8 million on May 1, a few days before WTI crude oil closed at this year’s high of $60.93 per barrel on May 6 after a 49-day rally. [Inverse ETFs to Hedge Against Hurdles Ahead]

“The hot money, the money that’s looking for short term trades, may have taken some of those gains,” Issakainen added. “I don’t make much more of it than people making tactical moves.”

Some oil market observers, though, argue that the energy sector could see further weakness as fundamentals remain unfavorable, with inventories reaching near their highest in over two decades. [Oil ETFs: Iraq, OPEC Maintaining Higher Exports]

“The fundamentals for quite some time haven’t supported the price rise we’ve seen,” Chris Johnson, a strategist at Macquarie Capital (USA) Inc, said in the article. “Uptick in demand has clearly not been in line with supply.”

For more information on the energy sector, visit our energy category.

Max Chen contributed to this article.

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.