International oil prices are on a steep rise, surpassing the $100 per barrel mark. As oil prices increase, investments related to crude oil gain attention. Today, we will explore the differences between oil exchange-traded notes (ETNs) and refinery stocks.
WTI and Brent Crude Surpass $100 per Barrel: Notable Price Surge
On September 10, West Texas Intermediate (WTI) futures traded at $102 per barrel. Meanwhile, Brent crude futures, which had already crossed the $100 threshold, fluctuated around $107 per barrel, and Dubai crude was trading at approximately $116 per barrel. All three major crude oils are now priced above $100 per barrel.
This marks the first time since July that key international oil prices have exceeded $100 per barrel. Notably, the rate of increase is significant. Compared to a month ago, WTI futures have risen by 25.22%, while Brent futures have increased by 21.26%.
The surge in oil prices is attributed to ongoing conflicts in the Middle East. U.S. military strikes on Iranian military facilities in the Strait of Hormuz have escalated tensions. Recently, reports emerged that Houthi rebels have taken control of the port city of Mocha in southwestern Yemen, raising concerns about the safety of trade routes through the Red Sea.
This marks the first time since July that key international oil prices have exceeded $100 per barrel. Notably, the rate of increase is significant. Compared to a month ago, WTI futures have risen by 25.22%, while Brent futures have increased by 21.26%.
The surge in oil prices is attributed to ongoing conflicts in the Middle East. U.S. military strikes on Iranian military facilities in the Strait of Hormuz have escalated tensions. Recently, reports emerged that Houthi rebels have taken control of the port city of Mocha in southwestern Yemen, raising concerns about the safety of trade routes through the Red Sea.
Oil ETNs Outperform During Price Surges; Refinery Stocks Lag Behind
In response to rising international oil prices, various financial products in the stock market are reacting. The focus is particularly on oil ETNs and refinery stocks.
According to the Korea Exchange on September 11, Meritz WTI Oil Futures and Shinhan WTI Oil Futures have risen by 30.97% and 24.53%, respectively. Samsung Bloomberg WTI Oil Futures ETN also jumped by 25.47%. When including leveraged ETNs, the increase is even more pronounced, with Meritz's leveraged ETN rising by 68% compared to a month ago.
Refinery stocks are also experiencing significant gains. As international oil prices rise, the refining margins increase, benefiting companies that process crude oil. Compared to a month ago, the stock prices of the three major refiners—SK Innovation (up 16.31%), GS (up 22.3%), and S-Oil (up 7.45%)—have all seen substantial increases. In the KOSDAQ, oil distribution company Heunggu Oil has surged by 39.14%.
So, which has been the better investment over the past month: oil ETNs or refinery stocks? I would argue that oil futures ETNs have decisively outperformed. While the arithmetic averages may seem similar, the variables involved in choosing which refinery stock to invest in complicate the decision. However, it is important to note that ETNs have more complex tax implications compared to domestic stocks.
Typically, analysts believe that during periods of rapid oil price increases, ETNs are advantageous, while refinery stocks tend to rise after the initial surge. In scenarios of geopolitical shocks, such as wars or blockades, ETNs can provide immediate returns without delays in reflecting performance. Conversely, in prolonged periods of rising oil prices, the cumulative benefits of improved refining margins favor refinery stocks. The key for oil ETNs lies in supply changes, while refinery stocks are more influenced by demand changes.
This pattern was evident even before the U.S.-Iran ceasefire in the first half of the year. In July, leveraged ETNs recorded returns in the 60% range, while refinery stocks began to rise only after improvements in refining margins were confirmed, showing a delayed response to the initial surge in oil prices.
According to the Korea Exchange on September 11, Meritz WTI Oil Futures and Shinhan WTI Oil Futures have risen by 30.97% and 24.53%, respectively. Samsung Bloomberg WTI Oil Futures ETN also jumped by 25.47%. When including leveraged ETNs, the increase is even more pronounced, with Meritz's leveraged ETN rising by 68% compared to a month ago.
Refinery stocks are also experiencing significant gains. As international oil prices rise, the refining margins increase, benefiting companies that process crude oil. Compared to a month ago, the stock prices of the three major refiners—SK Innovation (up 16.31%), GS (up 22.3%), and S-Oil (up 7.45%)—have all seen substantial increases. In the KOSDAQ, oil distribution company Heunggu Oil has surged by 39.14%.
So, which has been the better investment over the past month: oil ETNs or refinery stocks? I would argue that oil futures ETNs have decisively outperformed. While the arithmetic averages may seem similar, the variables involved in choosing which refinery stock to invest in complicate the decision. However, it is important to note that ETNs have more complex tax implications compared to domestic stocks.
Typically, analysts believe that during periods of rapid oil price increases, ETNs are advantageous, while refinery stocks tend to rise after the initial surge. In scenarios of geopolitical shocks, such as wars or blockades, ETNs can provide immediate returns without delays in reflecting performance. Conversely, in prolonged periods of rising oil prices, the cumulative benefits of improved refining margins favor refinery stocks. The key for oil ETNs lies in supply changes, while refinery stocks are more influenced by demand changes.
This pattern was evident even before the U.S.-Iran ceasefire in the first half of the year. In July, leveraged ETNs recorded returns in the 60% range, while refinery stocks began to rise only after improvements in refining margins were confirmed, showing a delayed response to the initial surge in oil prices.
Consider OPEC+ Dynamics, Dollar Index, and Exchange Rates: U.S.-China Industrial Conditions Also Impact
Investors looking to capitalize on oil price fluctuations must consider several factors. South Korea is neither an oil-producing country nor a reserve currency nation.
One key factor is the announcements from the Organization of the Petroleum Exporting Countries Plus (OPEC+). OPEC+ can convene emergency meetings to adjust production levels in response to market shocks, regardless of pre-scheduled meetings. Increasing production can significantly impact the market, especially when cuts are difficult to implement in the short term.
The dollar index and the exchange rate between the Korean won and the U.S. dollar are also important considerations. Most crude oil is traded in dollars, so even if oil prices fall, a rising exchange rate can create conflicting effects. Additionally, monitoring the industrial production situation in China, the world's second-largest oil consumer, as well as U.S. strategic petroleum reserve releases and inventory levels, is advisable.
Domestic conditions should also be periodically assessed. Implementing a maximum oil price system, as seen now, can also be a variable affecting the market. Typically, rising oil prices can negatively impact distribution companies, such as delivery services, but the recent lower-than-expected downward pressure in this sector may be attributed to this factor.
One key factor is the announcements from the Organization of the Petroleum Exporting Countries Plus (OPEC+). OPEC+ can convene emergency meetings to adjust production levels in response to market shocks, regardless of pre-scheduled meetings. Increasing production can significantly impact the market, especially when cuts are difficult to implement in the short term.
The dollar index and the exchange rate between the Korean won and the U.S. dollar are also important considerations. Most crude oil is traded in dollars, so even if oil prices fall, a rising exchange rate can create conflicting effects. Additionally, monitoring the industrial production situation in China, the world's second-largest oil consumer, as well as U.S. strategic petroleum reserve releases and inventory levels, is advisable.
Domestic conditions should also be periodically assessed. Implementing a maximum oil price system, as seen now, can also be a variable affecting the market. Typically, rising oil prices can negatively impact distribution companies, such as delivery services, but the recent lower-than-expected downward pressure in this sector may be attributed to this factor.
* This article has been translated by AI.
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