Oil ETFs Slide As “Top Kill” Fails, Obama Lashes Out

by on June 1, 2010 | ETFs Mentioned:

When the Deepwater Horizon oil platform exploded in late April, few expected the story to be dominating headlines almost six weeks later. However, as oil began to spill out and BP’s numerous efforts to contain the problem failed, it became increasingly clear that this would become one of the worst environmental disasters in world history. In its latest attempt, BP tried to plug the leak using a ‘top kill’ method, which sought to pump mud into the well. More than 1.2 million gallons of mud were used, but BP retreated from the plan over the weekend as it became clear that the “top kill” was not going to be successful due to most of the mud escaping out of the damaged riser.

The spill, which is by some estimates the largest in U.S. history, has no end in sight and appears likely to last until August at the earliest. Currently, government estimates believe that roughly 12,000-19,000 barrels are spilling into the Gulf every day, with the total to date equal to three times the oil spilled in the Exxon Valdez disaster more than twenty years ago. Shares of BP were down sharply on the news of the latest failure, sinking by more than 12% in midday trading on Tuesday. Things have gotten so bad for the embattled oil giant that some analysts are forecasting that the firm could become a takeover target…or worse. “This situation has now gone far beyond concerns of BP’s chief executive Tony Hayward being fired, or shareholder dividend payouts being cut — it’s got the real smell of death,” said Dougie Youngson, oil analyst at Arbuthnot. In addition to massive losses for BP,  which are now approaching $1 billion, several energy ETFs plummeted on the news. Among the biggest losers were oil service ETFs, all of which were down more than 6% on Tuesday. Below are three of the worst hit energy ETFs on the news that the Deepwater Horizon disaster is seemingly just getting started (Oil ETFs In Focus As Top Kill Begins).

ETFs In Focus:

PowerShares Dynamic Oil Services (PXJ): This ETF focuses on oil and gas service companies, and its largest holdings include FMC Technologies (5.60%), Rowan Companies (5.44%), and Oceaneering International (5.11%). FMC and Oceaneering were both down more than 12% while Rowan sank roughly 5.5% on Tuesday. These plunges helped to send PXJ lower by 6.2% in afternoon trading (see holdings of PXJ).

iShares Dow Jones U.S. Oil Equipment & Services Index Fund (IEZ): This fund, which tracks the Dow Jones U.S. Select Oil Equipment & Services Index, was down more than 6.5% in Tuesday trading. Close to 31% of the fund’s assets are tied up in two companies; Schlumberger and Halliburton. Schlumberger was down by 7.4% while Halliburton fell by close to 12.5% on the day. See more information on IEZ’s holdings here.

Merrill Lynch Market Oil Service HOLDR (OIH): This fund has many of the same holdings as IEZ, but features  a much higher allocation towards Transocean, which makes up about 16% of the fund’s total assets. Transocean was down close to 9.1% on the day which helped to drag OIH severely lower today, down almost 6.9% in afternoon trading (also see Deepwater Spill Contaminates More Than Just Water).

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Disclosure: No positions at time of writing.