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Oil ETFs Plummet on Russian Oil Cap

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Oil exchange-traded funds plummeted Friday as the European Union announced a price cap on Russian oil.

The ProShares Ultra Bloomberg Natural Gas (BOIL) and the United States Natural Gas Fund LP (UNG) lost 13% and 6.6%, respectively, during midday trading. Two of the largest energy-focused ETFs, the Energy Select Sector SPDR Fund (XLE) and the iShares U.S. Oil & Gas Exploration & Production ETF (IEO), both dipped nearly 1%.

Meanwhile, shares of the ProShares UltraShort Bloomberg Natural Gas (KOLD), which provides two times the inverse exposure to the performance of a futures contract on natural gas for one day, jumped as high as 14%.

Despite the strong market reaction on Friday, some experts have noted that price caps may have minimal impact on the oil market in the days to come.

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“The cap at $60 is unlikely to have an effect on the oil market, unless something happens to make the physical flows of Russian oil stop or slow,” Peter McNally, global sector lead for industrials, materials and energy at Third Bridge, told ETF.com, noting that Russian crude oil discounts are already in place for the past few months.

“If, for some reason, Russia decides to withhold barrels from the market, then the chances of a price surge go up, as there simply isn’t a lot of crude inventory by historical standards,” he added.

The sector’s moves come after the European Union agreed to put a $60 a barrel cap on Russian oil after nearly a week of hard-sought negotiations. While the price per barrel is higher than the current rate of Russia’s crude oil, it stands lower than the current price in Asia. The $60 is also lower than a previous proposal of $65, a downgrade put into effect following pressure from Poland and other Eastern European nations.

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According to an EU document with details of the cap, the price limit will be regularly reviewed to analyze effects on the market, but would remain “at least 5% below the average market price.”

“I welcome the EU’s agreement on setting a price cap on Russian oil,” said Estonia’s Prime Minister Kaja Kallas, in a tweet on Friday. “Crippling Russia’s energy revenues is at the core of stopping Russia’s war machine.”

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Brent Crude, a global price benchmark for Atlantic basin crude oils, slipped 1.8% on the news.

Contact Shubham Saharan at shubham.saharan@etf.com

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