Top and Flop Sector ETFs on Tougher U.S. Sanctions on Iran

Sanghamitra Saha

As part of President Donald Trump’s initiative to put an embargo on Iran’s missile and nuclear programs and diminish its influence in the Middle East, the United States first levied energy sector sanctions on Iran last November.

However, Washington offered temporary oil import waivers to eight key buyers — China, India, Greece, Italy, Taiwan, Japan, Turkey and South Korea (read: Iran Sanctions Unlikely to Boost Oil ETFs in 2019?)

But now, the Trump administration plans to toughen the sanctions and stop the above-mentioned countries from importing Iranian crude oil. The news lifted oil prices to a six-month high.

Markets had anticipated a waiver for five of the above-mentioned countries. However, the administration says that any country still importing oil from Iran will be subject to U.S. sanctions starting May 2, per CNBC.

The Trump administration is believed to be working with Saudi Arabia and the United Arab Emirates to make up for the output loss caused by the full-scale Iran sanctions. The Saudis and UAE are currently abiding by the six-month output cut deal. The OPEC+ alliance has been in the process to keep 1.2 million bpd of oil away from the market since January.

The latest news of Iran sanctions boosted oil prices on Apr 22. United States Oil Fund, LP USO added about 2.6% and United States Brent Oil Fund, LP BNO advanced about 2.9% on the day (read: Oil Jumps: 4 ETFs to Benefit & 4 to Suffer).

Against this backdrop, we highlight a few sector ETFs that could gain or lose from the latest spurt in oil prices.

Gainers

Energy – SPDR S&P Oil & Gas Exploration & Production ETF XOP — Up 3.7%

This is the most obvious choice. If oil price is on an uptrend backed by reduced supplies, oil exploration and production stocks are sure to benefit as these companies will tend to pump more oil ahead.

Shipping – Guggenheim Shipping ETF SEA — Up 0.9%

The energy sector accounts for about half of the Guggenheim Shipping ETF. Higher oil prices will benefit shipping companies that are used to transport bulk of oil and gas across the country and around the world.

Losers

Retail - SPDR S&P Retail ETF XRT — Down 2.1%

Lower gasoline prices bode well for retailers as consumers can rake in more energy savings and have additional money for discretionary spending. Thus, rising energy prices are not a positive for retailers.

Oil Refiners – Market Vectors Oil Refiners ETF CRAK — Down 0.2%

Companies in the refining segment face the brunt of an uptick in 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 — Down 1.3%

The airline sector 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 hurt earnings of airline companies.

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SPDR S&P Retail ETF (XRT): ETF Research Reports
 
US Commodity Funds United States Oil Fund (USO): ETF Research Reports
 
U.S. Global Jets ETF (JETS): ETF Research Reports
 
Invesco Shipping ETF (SEA): ETF Research Reports
 
United States Brent Oil Fund LP (BNO): ETF Research Reports
 
SPDR S&P Oil & Gas Exploration & Production ETF (XOP): ETF Research Reports
 
VanEck Vectors Oil Refiners ETF (CRAK): ETF Research Reports
 
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