June 26 Week: USO and UNG Fall, XLE Wins among Energy ETFs
iPath S&P GSCI Crude Oil Total Return Index ETN
The iPath S&P GSCI Crude Oil Total Return Index ETN (OIL) provides exposure to WTI (West Texas Intermediate) crude oil futures prices. It’s one of the closest competitors of its ETF equivalent—the United States Oil Fund (USO). Since both OIL and USO track WTI crude oil prices, they both ended lower in the week ending June 26. However, OIL fell by 0.33%. This was slightly more than the 0.2% fall that USO saw last week.
Apart from commodity ETFs, lower oil prices also hurt stock ETFs like the Energy Select Sector SPDR ETF (XLE). It holds upstream companies like Murphy Oil (MUR) and Apache (APA). It’s also negative for MLPs (master limited partnerships) like MarkWest Energy Partners (MWE) and Magellan Midstream Partners (MMP). These MLP companies account for ~15% of the Alerian MLP ETF (AMLP).
Comparing performances
Both OIL and USO fell last week as a result of weak crude oil prices. They saw some volatility over the week. They rose well over 2% mid-week, before ending lower. They both underperformed the SPDR S&P Oil & Gas Exploration & Production (XOP). XOP saw a slight fall of just 0.1% in the week ending June 26. This is because XOP includes energy companies that may have measures in place to shield them from short-term movements in energy prices.
Indeed, the integrated and large energy company heavy Energy Select Sector SPDR ETF (XLE) rose 0.22% in the week ending June 26. This makes these equity energy ETFs a relatively safer bet for conservative investors to play energy prices. The Market Vectors Oil Services ETF (OIH)—an oilfield services and equipment ETF—fell 0.25%.
About ETNs
Apart from ETFs, investors can also opt for ETNs (exchange-traded notes). ETNs act like bonds—a debt security issued by a bank or a financial institution like Barclays (BCS). Barclays is OIL’s issuer. ETNs represent a promise made by the issuer to pay returns in a pattern that mirrors returns from an underlying benchmark index—the S&P GSCI Crude Oil Total Return Index in OIL’s case. Unlike ETFs that pay out dividends, ETNs issue quarterly coupons or interest payments.
You can read more about the difference between ETFs and ETNs at Comparison of exchange-traded funds and exchange-traded notes.
Read more articles on Market Realist’s Energy and Power page to learn more about the energy sector.
Browse this series on Market Realist: