Last Friday, Brent oil futures, the global benchmark contract,
fell below NYMEX-traded West Texas Intermediate for the first
time since August 17, 2010.
That was on an intraday basis and Brent ultimately closed at a
slight premium to WTI, one that grew Monday as WTI fell more than
WTI is in the midst of a four-week winning streak, buoyed by
last week's favorable inventories data and a string of
encouraging U.S. economic data points. That could be a sign oil
is due for a near-term pullback, possibly making the PowerShares
DB Crude Oil Double Short ETN (NYSE:
), an alluring play.
However, history shows that the last time Brent and WTI were
nestled this close together, owning oil equities and the
that house them over the next 90 days was an excellent trade.
Soaring U.S. oil output at the Bakken, Eagle Ford and Permian
Basin shale plays, among others, has helped unlock the supply
glut and that is proving to be a boon for refiners, whose shares
have recently been under siege after surging earlier this
Refiners, enjoying bumper profit margins on export sales, are
running their hardest since 2005, drawing down U.S. crude
inventories at the fastest rate on record,
Increased activity and attractive margins for ETFs such as the
iShares U.S. Oil & Gas Exploration & Production ETF
) and the PowerShares Energy Exploration & Production
). While there is refiner-specific ETF on the market today, IEO
and PXE are credible options
due to their larger-than-average weights
to refining names.
IEO has four refiners among its top-10 holdings while three
refiners are found among PXE's top-eight holdings. When Brent and
WTI met back on August 17, 2010, IEO and PXE proceeded to gain 14
percent and 17.3 percent, respectively, over the next 90 days.
The two ETFs have gained an average of 1.75 percent over the past
five trading days.
More traditional equity-based energy ETFs also performed well
during the aforementioned 2010 time frame. The Energy Select SPDR
) gained almost 14 percent while the rival Vanguard Energy ETF
) gained nearly 15 percent. Those performances make sense because
XLE and VDE are heavily allocated to Exxon Mobil (NYSE:
), Chevron (NYSE:
) and Occidental Petroleum (NYSE:
Those companies have not followed the lead of Marathon Oil
) and ConocoPhillips (NYSE:
) in spinning off their refining operations. Since the refining
business is still a revenue driver for Exxon, Chevron and
Occidental, those stocks stand to benefit from favorable margins.
That trio represents 40.6 percent of VDE's weight and about 36
percent of XLE's weight.
The Guggenheim Equal-Weight S&P 500 Energy ETF (NYSE:
) was another solid August-November 2010 play. In fact, RYE
slightly outperformed VDE and XLE over that time. No stock
receives an allocation north of 2.7 percent in RYE, but the ETF
is home to four pure-play refiners along with Exxon, Chevron and
Occidental. With just 43 stocks, at least one of every six RYE
holdings has some refining exposure.
For more on ETFs, click
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