Investors are cautiously pulling money out of energy producers the very first time in eight months, taking short-term gains after oil rebounded from the six-year low.
More than $1.55 billion has been withdrawn this month from exchange-traded funds concentrated on energy stocks for example Exxon Mobil Corp. and Chevron Corp. It\’s on pace for the first monthly setback for the group since investors began pouring into the sector in October with an eye toward profiting from an eventual recovery in prices.
\”The thesis that oil is simply too cheap and contains to go higher maybe is not as compelling a case with oil at $60 because it was if this was at $42,\”said Ryan Issakainen, a strategist initially Trust Advisors LP in Wheaton, Illinois.
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Still, $5.4 billion remains from the new money invested in energy ETFs since the beginning of the year suggesting that traders are trimming positions, not starting a rout.
On May 1, energy ETF\’s lost $475.8 million, days before U.S. crude closed at this year\’s high of $60.93 a barrel on May 6, ending a 49-day rally from the six-year low of $43.46 on March 17, based on data compiled by Bloomberg. Oil closed Wednesday at $57.51.
Because ETFs own baskets of shares, they enable investors to put broad bets on the direction of markets at lower cost than buying and trading individual stocks. The cost of crude determines the underlying value for most energy companies. The 41-company S&P 500 Energy Sector Index tends to rise and fall using the oil price.
Investors withdrawals from energy ETFs so far this month include $806.8 million in the Energy Select SPDR Fund, the biggest energy-stock ETF, which had swelled to some record $15 billion of market price May 1.
\”The hot money, the cash that\’s looking for short term trades, may take some of those gains,\” Issakainen said. \”I don\’t make really it than people making tactical moves.\”
Although withdrawals from energy ETFs have slowed previously week, they haven\’t stopped. A lot more than $400 million was removed from the sector in every of the first two weeks of May. Withdrawals over the past seven days were about $338 million.
Crude may fall back further, said Chris Johnson, a strategist at Macquarie Capital (USA) Inc. in New York. \”The fundamentals for quite a while haven\’t supported the price rise we have seen,\” he said. \”Uptick in demand has clearly not been in line with supply.\”
U.S. crude inventories are near the highest in more than 20 years, according to the Energy Department.
Also weighing on the oil prices are a stronger U.S. dollar, Johnson said. Because crude is priced in dollars, a family member decline in other currencies makes oil more expensive, curbing demand.
Those fundamentals make energy stocks \”definitely an overbought trade, so people have started to move out of it,\” Johnson said. \”I\’d expect that to continue in the coming weeks.\”
Energy money is worth $50.4 billion, trailing healthcare and real-estate funds. Only health-care ETFs have drawn more money this year.
\”ETF investors were early towards the recovery trade,\” said David Mazza, a strategist at State Street Corp. Money poured into energy ETFs even as equity analysts cut earnings forecasts. Oil majors from BP Plc to Exxon Mobil to Total SA beat first- quarter estimates.
State Street\’s Energy Select Sector SPDR had probably the most withdrawals associated with a sector-focused fund to date this month.
Also among the top 10 in withdrawals were SPDR S&P Oil & Gas Exploration ETF, which holds smaller companies focused on production, Market Vectors Oil Service ETF, focused on companies that provide drilling and production services for example Schlumberger Ltd. and Halliburton Co., and also the Blackrock Inc. iShares U.S. Energy ETF, based on data compiled by Bloomberg.