Oil and Energy Stocks Teeter as Coronavirus Cases Soar in the U.S.


After a huge bounce last quarter, energy is struggling again as coronavirus keeps spreading.

The SPDR Energy ETF (XLE) fell 9 percent between June 30 and Thursday’s close. That makes it the worst-performing sector this quarter by a huge margin. It also contrasts with a gain of almost 2 percent for the S&P 500.

Traders may soon brace for more downside after U.S. cases of coronavirus rose by a record 60,565 yesterday. That could force more states to pause their reopening plans, reducing travel and an economic rebound.

Both could hurt demand for petroleum products. It comes at a potentially bearish time because stockpiles of unused crude oil have climbed toward their highest levels ever — despite the least drilling activity on record.

Crude oil futures (@CL), showing Bollinger Bands and bandwidth.
Crude oil futures (@CL), showing Bollinger Bands and bandwidth.

Still, crude oil futures (@CL) have drifted sideways for more than a month. Their range has narrowed recently, squeezing their Bollinger Bandwidth to the tightest since the crash began in late February. That may signal a move is coming soon.

Crude prices have held so far, but yesterday XLE closed at its lowest level since April 22. It’s trying to hold a level from mid-May, but traders may still want to keep an eye on it. A breakdown from here could start to get more attention and potentially drag @CL lower as well.

One final thing: Newer groups like electric cars and solar energy have surged despite cheap oil. That may reflect a deeper, structural shift away from fossil fuels: another potential risk for XLE and its member stocks.

SPDR Energy ETF (XLE), with 50- and 100-day moving averages.
SPDR Energy ETF (XLE), with 50- and 100-day moving averages.
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David Russell is Global Head of Market Strategy at TradeStation. Drawing on nearly two decades of experience as a financial journalist and analyst, his background includes equities, emerging markets, fixed-income and derivatives. He previously worked at Bloomberg News, CNBC and E*TRADE Financial. Russell systematically reviews countless global financial headlines and indicators in search of broad tradable trends that present opportunities repeatedly over time. Customers can expect him to keep them appraised of sector leadership, relative strength and the big stories – especially those overlooked by other commentators. He’s also a big fan of generating leverage with options to limit capital at risk.