The Market Vectors Oil Refiners ETF (NYSEArca: CRAK), the first dedicated exchange traded fund play on refiners equities, is off to a slow start in 2016, but that does not imply investors should ignore the ETF and its holdings.
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.
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).