Short Sellers Target Energy ETFs

The Energy Select Sector SPDR (NYSEArca: XLE), the largest equity-based energy exchange traded fund, and the SPDR S&P Oil & Gas Exploration & Production ETF (NYSEArca: XOP), the largest ETF focusing on exploration and production companies, are up an average of about 16% over the past month.

Plenty of skeptics remain regarding oil’s fundamental outlook despite recent news from the Organization of Petroleum Exporting Countries (OPEC) that the cartel will reduce oil production by 32.5 million barrels per day. Additionally, the recent rallies in XLE and XOP are inviting short sellers to feast on those funds.

“At $2.7 billion and $2.3 billion respectively, the size of the short positions in the XOP and the XLE lag only the SPDR Consumer Staples Sector ETF (XLP), according to Ihor Dusaniwsky, head of research at S3 Partners,” reports Johanna Bennett for Barron’s.

The Direxion Daily S&P Oil & Gas Exploration & Production Bear Shares (NYSEArca: DRIP) takes the -3x, or -300%, daily performance of the S&P Oil & Gas Exploration & Production Select Industry Index, the same index tracked by XOP.

As ETF Trends reported last week: While energy companies are expected to be the largest contributor to earnings decline for the S&P 500 in the third quarter, the stabilizing crude oil prices and potential production cutbacks from major oil producers could help support sector-related exchange traded funds.