The Energy Select Sector SPDR (NYSEArca: XLE) has traded modestly higher this year, but that is an improvement over last year’s nearly 9% tumble for the largest equity-based energy exchange traded fund.
A combination of abundant supply, OPEC’s unwillingness to do anything about that situation and unfavorable seasonal factors could soon present headwinds to XLE and rival energy ETFs. Looking at energy sector seasonality, the end of May represents what is, historically, the sector’s best stretch while June is usually unkind to oil stocks.
“Investor flows are no longer supportive for energy ETFs. Valuations are not as compelling at this point either. … Seasonality is about to turn ugly for the energy sector. June is historically the worst month for XLE. And finally, while longer-term, the sector remains oversold, shorter-term trend evidence suggests caution for now,” according to a Ned Davis Research note posted by Chris Dieterich of Barron’s.
Signs are in place that June could be a rough month for energy ETFs. The United States Oil Fund (NYSEArca: USO), which tracks West Texas Intermediate crude oil futures, is off slightly over the past month, but XLE is wrapping up its strong seasonal period on a glum note, falling 4.3% over the past 30 days. [Energy ETF Investors Should Brace for ‘New Oil Order’]
Weakness in those ETFs comes as some OPEC members are resisting production. Some cartel members are even expected to boost production despite slack prices. According to shipping programs, the oil market could see further pressure as Iraq plans to increase crude exports by about 26% to a record 3.75 million barrels per day in June, Bloomberg reports. [Expect Increased OPEC Output]