The United States Oil Fund (NYSEArca: USO), which tracks West Texas Intermediate crude oil futures, slumped nearly 10% on its way to touching a new 52-look low. While faltering oil prices obviously are not good news for energy stocks and the related exchange traded funds, some well-known energy ETFs are holding up better than oil prices.
The Energy Select Sector SPDR (NYSEArca: XLE), the largest equity-based energy exchange traded fund, fell just 2% last as some chartists see Dow components Exxon Mobil (NYSE: XOM) and Chevron (NYSE: CVX), the two largest U.S. oil companies, being close to bottoming out and potentially rebounding.
Last year, Exxon and Chevron, which currently combine for 35 percent of XLE’s weight, were two of the worst-performing stocks in the Dow Jones Industrial Average, helping make XLE the worst performer among the nine sector SPDR ETFs.
Last month “Chevron announced earlier this month it would cut capital spending by 24 percent in 2016 to $26.6 billion. The company will not issue production forecasts until it reports earnings in January, but management previously said it expects output growth of 13 to 15 percent — about 2.9 million to 3 million barrels per day — by the end of 2017,” according to CNBC.
Analysts expect that trend to continue in 2016. 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]
Relative strength “shown as Exxon and Chevron divided by the S&P 500, indicates that over the past few months, the two companies are doing no worse (and no better) than the broader market. That halts a trend in place since the start of 2012. One possible reason: Exxon and Chevron probably are able to maintain — and perhaps even increase — their dividend payouts amid an industry that’s too cash starved to do that,” reports Bloomberg.
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.
Energy Select Sector SPDR
