Three Energy ETFs Down At Least 20% In The Past Month

The slump in oil prices was one of the main reasons behind the dismal performance of the broader markets in the past one month. While both the Dow (DIA) and S&P 500 (SPY)  lost around 3% during this period, the broader energy index – Energy Select Sector SPDR ETF (XLE – ETF report) – declined more than 12% in the last one-month period.

Concerns regarding weak global demand, absence of production cuts from OPEC and North American shale suppliers, and the stronger dollar continued to weigh on oil prices. The price of Brent crude oil lost dropped to $36.35 per barrel earlier this week, hitting its lowest level since July, 2004. Meanwhile, the WTI crude price is traded below the key psychological level of $35-a-barrel after hitting a new 7-year low of $34.29 recently. While the price of WTI crude declined nearly 11.5%, Brent crude lost around 19% this month, its biggest drop since Oct 2008.

 
Concerns Dragging Crude Down 
 
The continuous rise in oil supply despite weak demand is one of the main causes of crude slide over the past few months. Earlier this month, OPEC – the international cartel of oil producers – decided to raise the ceiling of daily production from the prior level of 30 million barrels to 31.5 million barrels. Moreover, inventories near the highest level during this time of year in at least 80 years also remained one of the major concerns. Meanwhile, the drive of the major oil suppliers including OPEC, the U.S. and Russia to gain a larger market share is boosting the supply of the commodity (read: Q4 Outlook for Oil & Gas ETFs).
 
Meanwhile, declining global demand led by sluggish global growth also had a negative impact on oil prices over the past year. Persistent weakness in the world’s biggest consumer of energy, China, and an unfavorable economic environment prevailing in other major economies including Europe remained one of the major worries in the energy market. Also, a milder winter in the U.S. is likely to depress demand for energy and energy-related products. Moreover, a stronger dollar – edging even higher after the Fed policy makers unanimously voted to raise interest rates – has made the greenback-priced crude more expensive for investors holding foreign currency.
 
What’s Ahead?