Popular energy and oil ETFs

Payton Lee

Singapore Sales Trader

We had an action-packed oil market leading to a market rally after the Opec meeting last month. Implied options volatility, a way of measuring uncertainty among crude oil traders and investors is at its highest since the run. The Opec meeting in Austria concluded with oil ministers supporting a tentative agreement to boost output to an acceptable degree.

Opec and several allied non-Opec countries intend to increase their oil production markedly in the second half of the year. The aim is to compensate for the fall in output in Venezuela and bring the oil market back into balance. This intention could be counteracted by other production losses and the US’s demand for all oil imports from Iran to be stopped from November onwards.

Crude oil prices did not come under pressure after the Opec meeting despite the deal to increase output. On the contrary, Brent rallied back to its 3½-year high, while WTI tracked the same momentum as well.

Chart: Brent and WTI at 3½- year highs

Source: Bloomberg, Saxo

Data from the Energy Information Administration on Thursday, July 5, showed that US crude stockpiles rose by 1.2 million barrels for the week of June 29, 2018. While another contributing factor to higher supplies was Baker Hughes US rigs drilling for oil. The chart below clearly shows that the number of active rigs rose to 863, the highest level since 2014.

Source: Bloomberg, Saxo

Other than acquiring exposure in oil futures contracts, we can see an increasing number of investors looking at other popular ways to get portfolio exposure in oil and energy related ETFs (exchange traded funds).

Source: Bloomberg, Saxo

The Opec decision supported a surge in oil futures. The United States Oil Fund LP (USO) jumped 12% and marked its best intra-day gain since April 18, while the Energy Select Sector SPDR ETF (XLE) rallied 10% since mid of April 2018. Additionally, S&P 500 index's energy sector was the best performer among the benchmark's 11 sectors. From the chart above we can clearly see that the Energy index and XLE US is still lagging the market oil rally.

An examination of prices in the volatile oil market reveals that inverse/short Oil ETFs were other instruments through which investors could gain exposure to oil's decline. The chart below demonstrates that these ETFs have produced returns during a period of extremely rapid declines in oil prices.

Source: Bloomberg, Saxo

The Saxo Group entities each provide execution-only service and access to Analysis permitting a person to view and/or use content available on or via the website is not intended to and does not change or expand on this. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Rules of Engagement and (v) Notices applying to Saxo News & Research and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Group by which access to Saxo News & Research is gained. Such content is therefore provided as no more than information. In particular no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on Saxo News & Research or as a result of the use of the Saxo News & Research. Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. Saxo News & Research does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication under relevant laws.

Please read our disclaimers:
- Notification on Non-Independent Investment Research (https://www.home.saxo/legal/niird/notification)
- Full disclaimer (https://www.home.saxo/legal/disclaimer/saxo-disclaimer)
- Full disclaimer (https://www.home.saxo/en-sg/legal/disclaimer/saxo-disclaimer)

None of the information contained here constitutes an offer to purchase or sell a financial instrument, or to make any investments. Saxo Markets does not take into account your personal investment objectives or financial situation and makes no representation and assumes no liability as to the accuracy or completeness of the information nor for any loss arising from any investment made in reliance of this presentation. Any opinions made are subject to change and may be personal to the author. These may not necessarily reflect the opinion of Saxo Markets or its affiliates.

Saxo Markets
3 Church Street, #30-00
Samsung Hub
Singapore 049483

All departments are available 08:30 to 17:30 Monday to Friday.


Saxo Capital Markets Pte Ltd ('Saxo Markets') is a company authorised and regulated by the Monetary Authority of Singapore (MAS) [Co. Reg. No.: 200601141M ] and is a wholly owned subsidiary of Saxo Bank A/S, headquartered in Denmark. Please refer to our General Business Terms & Risk Warning to consider whether acquiring or continuing to hold financial products is suitable for you, prior to opening an account and investing in a financial product.

Trading in financial instruments carries various risks, and is not suitable for all investors. Please seek expert advice, and always ensure that you fully understand these risks before trading. Trading in leveraged products such as Margin FX products may result in your losses exceeding your initial deposits. Saxo Markets does not provide financial advice, any information available on this website is ‘general’ in nature and for informational purposes only. Saxo Markets does not take into account an individual’s needs, objectives or financial situation.

The Saxo trading platform has received numerous awards and recognition. For details of these awards and information on awards visit www.home.saxo/en-sg/about-us/awards.

The information or the products and services referred to on this website may be accessed worldwide, however is only intended for distribution to and use by recipients located in countries where such use does not constitute a violation of applicable legislation or regulations. Products and Services offered on this website is not intended for residents of the United States and Japan. Please click here to view our full disclaimer.

This advertisement has not been reviewed by the Monetary Authority of Singapore.