Sector ETFs to Win/Lose as WTI Hovers Around 2018-Level

West Texas Intermediate (WTI) touched the highest since 2018 at the end of last week thanks to an improving demand outlook. The U.S. benchmark crossed the $70-a-barrel mark last week and Brent crude topped $72 a barrel, per oil price.com.

Analysts are expecting a recovery in oil demand this year as growing vaccination, reopening of economies and summers will help in pulling it up. Against this backdrop, below we highlight a few sector ETFs that could gain/lose in the coming days.

Gainers

Energy – SPDR S&P Oil & Gas Exploration & Production ETF XOP

This is the most obvious choice. If oil price is staging an uptrend on growing demand hopes, oil exploration and production stocks are sure to benefit as these companies will tend to pump more oil.

Financials – SPDR S&P Bank ETF (KBE)

Big banks had previously raised concerns about severe economic downturns and worsening credit quality. If oil prices had suffered for a prolonged period, there would have been a rise in delinquency rates from energy companies. Many small players were likely to file for bankruptcy protection. So, an oil price recovery is great news for banks.

Steel – VanEck Vectors Steel ETF (SLX)

Steel producers are likely to gain if oil prices continue to rise. The industry supplies materials to build and expand oil drilling operations. Shares of U.S. Steel (X) and ArcelorMittal (MT), two of the world’s largest steel producers, fell around 30% in the past six-month period from September 2014 through February 2015 amid low oil prices.

In the face of massive capex cuts by drillers in the peak of the pandemic, steel companies suffered a lot. Now, steel companies may heave a sigh of relief.

Losers

Retail – SPDR S&P Retail ETF XRT

Rising energy prices do not bode well for retailers as consumers’ wallets get squeezed from higher outlays on gas station. This is going to hurt consumers directly.

Oil Refiners – VanEck Vectors Oil Refiners ETF CRAK

Companies in the refining segment benefit from lower oil prices as crude is one of their main input costs. After taking crude, refiners transform it to the finished product gasoline. Now, with crude prices rising, refiners may see a lower crack spread and their profitability may be hurt.

Airlines – U.S. Global Jets ETF JETS

The airline sector also performs better in a falling crude scenario. This is especially true as energy costs form a major portion of the overall costs of this sector. So, rising crude prices are likely to curb earnings of airline companies.

Gold Miners – VanEck Vectors Gold Miners ETF (GDX)

Mining companies’ 50% production costs are closely linked to energy prices. Now, rising oil and growing risk-on sentiment (which curbs the safe-haven appeal for gold) will go against the gold miners.