How ETFs Affect Oil Stocks

  • Growing presence of ETFs affects equity markets has caused concern in some circles
  • Energy sector is dominated by a small number of ETFs such as XLE and OIH
  • ETF volume accounts for 55% of the daily turnover in Schlumberger (NYSE: SLB)

As the exchange traded funds industry has experienced astronomical growth, there have been concerns from some circles regarding how the growing presence of ETFs affects equity markets. When it comes the energy sector, that group is dominated by a small number ETFs that control the bulk of exchange traded assets allocated to energy equities.

That group of ETFs includes the Energy Select Sector SPDR (NYSEArca: XLE) and the Market Vectors Oil Service ETF (NYSEArca: OIH). A Guggenheim note cited by Teresa Rivas of Barron’s says ETF volume accounts for 55% of the daily turnover in Schlumberger (NYSE: SLB). Schlumberger, the world’s largest oilfield services provider, is OIH’s largest holding and a top 10 holding in XLE.

Likewise, XLE and comparable energy ETFs, in some cases, allocate close a third of their combined weights to Dow components Exxon Mobil (NYSE: XOM) and Chevron (NYSE: CVX), the two largest U.S. oil companies.

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.