Securities tied to the energy space all tumbled on Tuesday, tracking crude oil lower as caution grew ahead of a pivotal OPEC summit.
Investors had held out hope that production cuts will be announced at the meeting of the Organization of the Petroleum Exporting Countries, moves that could help stabilize oil prices and address a glut of oil that has resulted in crude prices tumbling from their 2014 peak. However, Wall Street has lately expressed its doubts.
“Understanding what OPEC will do is like herding cats, which is difficult even if you know how the cats behave, which isn’t something you can say here,” said John Kosar, chief market strategist at Asbury Research in Chicago.
The summit has been marked by confusion, with Russia not showing up and failed meetings ahead of the formal OPEC convention . That uncertainty has contributed to market gyrations.
Crude-oil futures sank 4.2% to $45.13 a barrel on Tuesday. While it remains up more than 27% for the year, that follows two years of sharp losses: oil fell nearly 46% in 2014, and another 30.5% over 2015, hurt by both low global demand and unchecked crude production.
“There’s no trend in oil prices right now, which shows the lack of conviction about what OPEC is doing,” Kosar said. “We’d need a strong catalyst to lift oil for more than a few days.” He added that there were three levels that could serve as support for crude oil prices: $44 a barrel, $42.70, and $41.40. Those levels indicate a downside range of 2.5% to 8.3% from current levels.
The losses were broad, hitting both funds that are tied to crude oil itself, as well as broader energy funds. The United States Oil Fund LP exchange-traded fund /zigman2/quotes/203483736/composite USO +0.14% fell 3.5%, moving on volume of nearly 20 million shares. Over the past week, $44.1 million has been pulled from the $3.6 billion fund, according to FactSet data, though year-to-date flows remain positive, with $164.7 million entering the fund.
The PowerShares DB Oil Fund /zigman2/quotes/202740135/composite DBO +0.33% fell 3.3% while the United States 12 Month Oil Fund LP /zigman2/quotes/209867783/composite USL +0.05% shed 3%. The iPath S&P GSCI Crude Oil Total Return Index exchange-traded note /zigman2/quotes/204600377/composite OIL -0.07% lost 2.9% on the day.
The Energy Select Sector SPDR ETF /zigman2/quotes/206420077/composite XLE -1.35% , one of the most popular ways for investors to play the broader energy space, fell 2.%. The fund has seen outflows of $105.1 million over the past week, but inflows of $2.15 billion year-to-date.
The VanEck Vectors Russia ETF /zigman2/quotes/200464876/composite RSX -2.78% , which is highly correlated to energy prices given the country’s economy’s dependence on the commodity, fell 1.1% on Tuesday.