The price of WTI crude oil has turned negative for the first time in history but funds exposed on the oil & gas sector have, so far, managed to shrug off its effect.
Prices of crude oil plummeted from around US$60 per barrel at the start of the year to negative this week as flights were cut and cars stayed off the road. This led to a steep excess in supply and limited demand as refiners struggled to store it all.
An agreement between OPEC and non-OPEC nations to cut supply earlier this month proved too little too late.
While funds have reported losses, the majority have still managed to outperform its equivalent benchmark with the ASX 200 Oil and Gas sector reporting losses of 42% since the start of the year to 20 April.
According to FE Analytics, there were nine funds with 10% or more exposure to oil and gas and only two which performed worse than the sector.
These were BetaShares Global Energy Companies ETF Currency Hedged which lost 44% and BetaShares Crude Oil Index ETF (AUD Hedged) which lost 68%.
Looking at the best-performing funds, RARE Infrastructure Value Unhedged had lost only 7.3% and RARE Infrastructure Income lost 9.3%.
Ben Jones, multi-asset class strategist at State Street Global Markets, said: “Less than 100,000 people are now passing through US airports according the TSA. Even when economies begin to open up again we do not expect people to rush to start travelling for ‘unnecessary’ reasons straight away meaning the oil demand hangover will have a long tail.”
Scott Haslem, chief investment officer at Crestone Wealth Management, said the recent fall was an indicator of a possible sharp correction in mid-2020.
“Oil is one of those markets where demand and supply is genuinely more visible and calculable in the short term than others. Notwithstanding oil still ultimately ‘feeds’ final consumer demand, it feed a broad range of it.
“To this end, the latest collapse in the oil price with near-term contract price for WTI falling from under $20 per barrel to zero (and negative for the first time in history) is telling us less about a lack of storage facilities globally and more about a lack of demand and the sharp correction unfolding in mid-2020 global activity.”
In order of best performance, the nine funds were RARE Infrastructure Value Unhedged, RARE Infrastructure Income, 4D Global Infrastructure, VanEck Vectors FTSE Global Infrastructure ETF, BetaShares Australian Resources Sector ETF, SSgA SPDR ASX 200 Resources, RARE Emerging Markets, BetaShares Global Energy Companies ETF Currency Hedged and BetaShares Crude Oil Index ETF (AUD Hedged).
Performance of ASX 200 Oil & Gas versus ASX 200 since start of year to 20 April, 2020
