As energy prices plunge and oil majors tighten their belts, oil equipment and services exchange traded funds will take the brunt of the blow in the beleaguered sector.
On Tuesday, the Market Vectors Oil Service ETF (NYSEArca: OIH) fell 4.0%, iShares U.S. Oil Equipment & Services ETF (NYSEArca: IEZ) declined 3.8%, SPDR Oil & Gas Equipment & Services ETF (NYSEArca: XES) dropped 4.6% and PowerShares Dyanmic Oil and Gas Service ETF (NYSEArca: PXJ) retreated 3.9%.
In comparison, the broader Energy Select Sector SPDR (NYSEArca: XLE), which includes a 18.5% tilt toward the energy equipment & services sub-sector, was 1.7% lower Tuesday. Meanwhile, the United States Oil Fund (NYSEArca: USO), which tracks West Texas Intermediate crude oil futures, declined 4.3% and the United States Brent Oil Fund (NYSEArca: BNO), which tracks Brent crude oil futures, decreased 3.0%.
With crude oil futures hovering around $30 per barrel, major oil producers have been aggressively cutting back costs to muddle through the lean times. For instance, Exxon Mobil (NYSE: XOM) has cut its drilling budget to a 10-year low and halted share buybacks after last year’s measures failed to counter a crash in energy prices, reports Joe Carroll for Bloomberg.
Exxon stated it will curb spending on rig leases, floating oil platforms, gas terminals and other projects by 25% this year to $23.2 billion, the lowest spending plan since 2007. The steepening cuts come off a 20% reduction in spending to $31 billion on drilling, floating platforms and gas-export terminals, compared to previous expectations of a 12% cut in spending last year.
Chevron (NYSE: CVX), which announced its quarterly earnings last week, also expects 2016 capital expenditure of $26 billion, or about 24% lower than the 2015 budget, with further reductions to the $20 to $24 billion range expected in 2017 and 2018, reports Ben Levisohn for Barron’s.
Oil prices continued to slip Tuesday, with WTI crude oil futures down 5.1% to $30.0 per barrel and Brent crude 4.1% lower to $32.9 per barrel. Crude prices fell for the second straight day Tuesday as hopes of a deal to curb the global supply glut faded and concerns over weakening demand amid a mild winter mounted, Reuters reports.
Market Vectors Oil Service ETF
Max Chen contributed to this article.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.