The coordinated attack on a Saudi Arabia oil facility has made a huge impact on the world with CNBC’s “ETF Edge” discussing the fallout on Monday. Host Bob Pisani spoke with ETF Trends CEO Tom Lydon about the spike in crude prices and more.
Diving right into the hollowed-out nature of the energy ETF sector, Pisani discussed the impact of Saturday’s Saudi oil field attacks on energy ETF volume. There was very big volume in these energy ETFs, including the Energy Select Sector SPDR ETF (XLE), the biggest energy ETF on the market.
However, looking at the holdings, it is clear 45% of XLE is comprised of two stocks, Chevron (CVX) and Exxon Mobile (XOM). It speaks to how hollowed-out the sector is, and Pisani wants Lydon’s thoughts on the way to look at someone who may be interested in rotating into these energy ETFs.
How XLE ETF Is A Success
Lydon explained how these energy ETFs cover three areas. First is the United States Oil Fund LP (USO), which is the spot crude itself, is a way to buy oil, without dealing with the companies. On the other hand, investors can buy those big energy companies, or they could go after the services companies, which are actually up greater today.
Also on hand was CFRA’s Todd Rosenbluth, who comments on the sudden interest in moving money around the ETF ecosystem to consider one of these sections, given how hollowed-out energy is in general. Rosenbluth explains how, based on CFRA’s research, they are more favorable on the exploration and production companies.
“Some of these small-cap companies that you mentioned earlier; hire debt leverage, weaker cash flows, this has really been a boost for them, a jolt that was unexpected from a supply perspective. And this could take a little bit of a while,” Rosenbluth states. “You also have exposure to value ETFs with exposure to energy, so IVE and RPE are some of the value slices of the S&P 500, with the energy exposures higher than what you find in the S&P.”
In talking about the differences in where the world was to now, there would have been a more dramatic response to this recent volatility ten years ago. However, Lydon notes how the big question concerns whether it is one-and-done, or if buyers will be seeing more.
“A lot of investors out there are thinking that might be the case, so they’re actually leveraging up through some one, two, three times ETFs that are available. And again, it’s a short-term trade,” Lydon adds.
When asked if there’s reason to believe oil company profits are going to be any higher in the next few years because of this event, Rosenbluth chimes in with how supply and demand is also crucial, and with supply coming off a bit, demand is still continuing to do well.
“If we see the global economy stay strong, we could see that continue.”
Watch This Discussion Covering Crude Oil Prices:
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