The Energy Select Sector SPDR (NYSEArca: XLE), the largest equity-based energy exchange traded fund, has had its shares of struggles in 2016 after being the worst of the nine sector SPDRs in each of the previous two years. However, there are signs some traders are betting XLE’s near-term outlook could be improving.
Only one of the eight SPDRs has added more new money this year than XLE and short interest in the ETF is declining. For investors looking to participate in a potential oil rebound without trying to time the market via futures and futures-based exchange traded products, ETFs such as XLE remain solid ideas. In terms of XLE’s price action, it is worth noting the ETF, which debuted in mid-1998, has been down similar roads in the past.
There are bullish signs from the options market as well with a large trade in XLE seen Monday “with the June $61.50 calls being bought to open in a range from $1.81 to $2.03 and the June $45 puts being sold to open in the $1.34 to $1.46 range, the risk reversal being done at a 2X3 ratio for 30,000 calls bought and 45,000 puts sold,” according to See It Market.
Bright spots have been few and far between for equity-based energy exchange traded funds this year and for all the struggles the encountered by the sector, it still is not inexpensive relative to the S&P 500. In fact, the energy patch is downright pricey compared to the broader market. This after a spate of spending cuts that have not been met with widespread enthusiasm among investors. [Oil ETF Dividends Appear Safe…Sort Of]
The low oil environment may persist as the Organization of Petroleum Exporting Countries projects demand for its crude to remain lower in 2020 than in 2016 as rivals remain resilient despite the depressed prices.
Additionally, supply could rise ahead as Iran is expected to pump 500,000 barrels per day of crude into global markets this year.
“The fundamental outlook for Energy remains weak as estimates are coming down sharply as E&P budgets are being slashed, and in the coming weeks these names will all be reporting earnings to give further insight for 2016. Data continues to suggest a worrisome outlook for crude oil prices as supply is rising after all of the US oil production the last few years coupled with OPEC not slowing production as it competes with Iran, as Oil is becoming a geopolitical instrument,” adds See It Market.
Energy Select Sector SPDR
