Van Eck Global’s Market Vectors exchange traded fund arm has launched the first sector-specific ETF exposed to global oil refiners.
According to a press release, the Market Vectors Oil Refiners ETF (NYSEArca: CRAK) began trading Wednesday. The new ETF has a 0.59% net expense ratio.
CRAK tries to reflect the performance of the Market Vectors Global Oil Refiners Index, a modified market cap-weighted index that follows the largest and most liquid companies in the global oil refining industry.
Top holdings include Marathon Petroleum (NYSE: MPC) 8.8%, Phillips 66 (NYSE: PSX) 8.7%, Valero Energy Corp. (NYSE: VLO) 8.5%, Tesoro Corp. (NYSE: TSO) 7.0%, Reliance Industries 6.7%, Holly Corp (NYSE: HFC) 6.5%, Polski Koncern Naftowy Orlen 5.2%, Jx Holdings 5.2%, Galp Energia Sgps 4.1% and Formosa Petrochemical 3.9%. CRAK has 26 holdings.
Oil prices are moving toward a six-and-a-half year low Wednesday after the U.S. Energy Information Association revealed crude stockpiles were up 2.6 million barrels at 456.21 million barrels last week, Reuters reports.
The oil inventory update caught investors off guard, pushing WTI crude oil futures down 4.6% to $40.7 per barrel and Brent crude oil futures 3.8% lower to $46.9 per barrel.
Nevertheless, the oil refinery business may benefit from lower crude oil prices, or lower input costs. The price of finished products such as gasoline, diesel and fuel oil can affect a refinery’s profitability. Consequently, the difference between the cost of crude oil and the price of the products, or so-called crack spread, is a common indicator of the potential profits.
The US Golf Coast 3:2:1 crack spread rose 10.8% in the week ended August 10, according to Market Realist. Additionally, the U.S. gasoline and crude futures crack spread widened to almost its highest since 2013, Reuters reported.
“The profitability of refiners is generally influenced by the spread between the cost of crude oil and the prices at which refined products can be sold, commonly known as crack spreads,” Brandon Rakszawski, product manager at Van Eck Global, said in a press release. “Oil refiners have tended to react differently to the price of oil compared to other energy sector companies. Historically, the return profile is differentiated from other segments of the sector, a trend that has persisted year-to-date.”
Looking at the S&P Global 1200 Energy Sector Index compared to Energy Sub-Industries from June 2014 through June 2015, the refining & marketing sub-sector has returned 13.7%. In contrast, the energy industry declined 25.5%, coal & consumer fuels plunged 42.0%, integrated oil & gas decreased 24.1%, drilling plummeted 55.1%, equipment & services dropped 30.8% and exploration & production fell 34.3%, according to Van Eck Global.
Previously, energy investors would have gained exposure to the refinery industry through the PowerShares Dynamic Energy Exploration & Production Portfolio (NYSEArca: PXE) and the PowerShares DWA Energy Momentum Portfolio (NYSEArca: PXI), two broader options in lieu of a dedicated refiners ETF. The refinery exposure may have cushioned the overall decline in both ETFs, with PXE only down 1.9% and PXI 6.2% lower year-to-date, compared to the 14.1% drop in the S&P 500 Energy Index.
For more information on new fund products, visit our new ETFs category.
Money managers who are looking into constructing their own ETFs may also be interested in attending the second annual ETF Boot Camp in New York next month. Whether you’re an ETF start-up, fund company, broker dealer, pension plan, endowment, private equity firm, fund board independent director, 401k plan provider or ETF industry executive…this conference is designed for you. This one-of-a-kind event will condense everything you need to know about the inner workings of the ETF business into two days.
Max Chen contributed to this article.