Oil ETFs Up Against Bearish Earnings Pressure

Oil sector exchange traded funds are facing some hurdles as major energy producers ready their first quarter results. With overwhelmingly weak expectations after crude prices plunged to near 13-year lows in February, the sector ETFs could surprise if oil producers reveal conditions weren’t as bad as previously expected.

Energy traders will be watching for the ConocoPhillips’ (NYSE: COP) first quarter earnings announcement on Thursday, April 28, followed by Exxon Mobil (NYSE: XOM) and Chevron (NYSE: CVX) on Friday, April 29.

Since the start of the quarter, estimates for Exxon Mobil declined to $0.31 per share from $0.75 per share a year ago, Chevron estimates dipped to a $0.13 cent per share loss from a positive $0.55 cents a share and ConocoPhillips estimated per share loss fell to $1.05 from $0.19, according to FactSet data.

Of the 39 S&P 500 energy sector companies, 22 are expected to report a loss in earnings per share for the quarter, excluding Chevron.

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The energy sector is expected to record its largest year-over-year decline in earnings of all 10 S&P 500 sectors at -110.3%, which reflects an aggregate loss of $1.33 billion in the first quarter, compared to an aggregate earnings gain of $12.92 billion in the first quarter of last year.

With most analysts expecting largely weak results from the energy producers over the first quarter, any signs that conditions are not as bad as previously expected will help lift the sector. Moreover, looking further out, with crude oil prices rebounding over 10% off their February lows, the energy sector could improve in the quarters ahead.

ETF investors may track the energy sector play to capture an ongoing recovery. For instance, the Energy Select Sector SPDR (NYSEArca: XLE), Vanguard Energy ETF (NYSEArca: VDE) and Fidelity MSCI Energy Index ETF (NYSEArca: FENY) all provide market cap-weighted exposure to the energy sector.

XLE tries to reflect the Energy Select Sector Index, which represents the energy sector of the S&P 500 Index. As a market-cap weighted index ETF, the fund is top heavy, with a 18.6% tilt toward XOM, 14.8% CVX and 3.2% COP.