Oil prices have been a bit rocky to open up 2013, as
conflicting data points have tugged the important commodity in
both directions. Strong stock prices and a robust consumer have
helped to push oil higher in some sessions, while a firm dollar
and uncertain data readings from around the globe have been the
main catalysts for lower prices.
While oil has been favoring the bull market for much of the
second half of April, May isn't off to as good of a start.
Sluggish data from both of the two biggest consumers of oil-the
U.S. and China-have pushed oil prices sharply lower (about 3%) to
open the month (see
The Key to Investing in a Futures Backed ETF
Weak Data in China
First, Chinese data on the manufacturing front came in rather
weak, suggesting to some that the nation is indeed slowing down.
The PMI for the country
came in at just 50.6
, a miss compared to the 50.7 expectation, and lower than the
50.9 from a month ago.
This is important as 50.0 marks the difference between
expansion and contraction in the index, suggesting that it is
very close to falling into contraction territory. And with
expectations of a slowdown increasing, many are growing worried
about future oil demand in the country as well.
Closer to Home
Meanwhile in the U.S., data wasn't much better as the domestic
barely beat expectations
to finish at 52.1. Furthermore, new order growth slowed
suggesting that future months could be weak as well.
Investors also zeroed in on the ADP Employment Report, which
finished far below the consensus. In fact, the actual was just
119,000, far short of the 155,000 consensus.
To top off the weakness, crude oil inventories also soared
week-over-week, with the figure surging by over 6.7 million
barrels in Wednesday's reading. This puts the stocks of crude oil
at their highest level ever, a trend that could continue if
demand remains sluggish (see
Venezuela: The Next Black Swan for Oil ETFs?
Impact on Oil and Oil
All of these factors combined to drag down oil prices in
Wednesday's session, as both of the key demand markets have
question marks hanging over their growth outlooks.
Unsurprisingly, this carried over into the oil ETF world as well,
with a number of top products falling by over 2.5% on the
session, including the following funds:
United States Oil Fund (
- down 2.5%
PowerShares DB Oil Fund (
- down 2.6%
iPath Crude Oil Total Return ETN (
- down 2.7%
Beyond the actual commodity, ETFs tracking the equity side of
the oil industry were also in for a rough session. The broad
energy sector did ok-as represented by
which lost about 1.3%-- but there was a great deal of weaker
trading in the more niche corners of the space.
This was particularly true in the exploration and services
corners of the market, as these tend to be more volatile than
their integrated peers. Top choices in this segment like
for drilling and
for services led the way on the downside, losing roughly 1.75%
Crude Oil ETF Investing 101
It was a pretty rough day all around in the energy market, as
the data releases led to a slump in oil prices. This pushed oil
ETFs lower by about 2.5% on the day, while equity oil funds also
had a rough session.
Unfortunately, the outlook isn't exactly great in the space
though, and especially so after the recent round of data
releases. Commodities could continue to underperform based on
this sluggish view, so investors may want to look elsewhere for
exposure-like in the MLP space-until some more positive trends
can develop, and give oil ETF investors a better outlook going
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PWRSH-DB OIL FD (DBO): ETF Research Reports
IPATH-GS CRUDE (OIL): ETF Research Reports
US-OIL FUND LP (USO): ETF Research Reports
SPDR-SP O&G EQP (XES): ETF Research
SPDR-EGY SELS (XLE): ETF Research Reports
SPDR-SP O&G EXP (XOP): ETF Research
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