Since coming to market, the Market Vectors Oil Refiners ETF (NYSEArca: CRAK), the first dedicated exchange traded fund play on refiners equities, is up 2.5%. That may not sound like a jaw-dropping performance, but CRAK has been downright stellar compared to other equity-based energy ETFs in recent months.
The oil refinery business benefits from lower crude oil prices, or lower input costs. Meanwhile, 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.
A significant part of oil’s problems this year is attributable to the Organization of Petroleum Exporting Countries (OPEC) refusing to cut production in an effort to stem slumping prices. However, OPEC still has plenty of skin in the game, hence the cartel’s bullish prediction on crude prices.
OPEC has kept up production to pressure high-cost rivals, such as the developing U.S. shale oil producers. The International Energy Agency expects it will take several years before OPEC can effectively price out high-cost producers. [Oil ETFs Face World-Record Supply Glut]
Even with the headwinds created by OPEC and the rising dollar, some of CRAK’s marquee holdings are poised to rise in 2016, including Phillips 66 (NYSE: PSX) and Tesoro Petroleum (NYSE: TSO).
“Phillips 66 snapped a three week losing streak, successfully testing major support at the 2015 uptrend line. Volume was on the light side due to the holidays, possibly giving it a lower conviction in some investors eyes. However, it is important to note the bounce at the 40-week simple moving average (200-day SMA) and the finish back above the prior resistance/current support level at $82-$83. Those looking to buy the stock can place a stop loss under last week’s low of $79.47 to minimize risk. In November, the $45B midstream company topped out at $94. This remains major resistance with the key $100 psychological level just above there,” according to See It Market.
Phillips 66 and Tesoro Petroleum are CRAK’s second- and fifth-largest holdings, respectively, combining for over 13% of the ETF’s weight.
“Tesoro fell more than $20 from the highs and is now seeing buyers step up around the bottom of the uptrending channel. It is uncertain how long it will take for the stock to reach new highs, but if the weekly chart above tells us anything it is that volatility is the only certainty for traders. Because of this I would consider longer-dated options (2-5 months out) to avoid getting faked out in the whipsaw oil market and earnings that come out in February,” adds See It Market.
Market Vectors Oil Refiners ETF
