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Energy Funds' Losses Accelerate

The U.S. Department of Transportation reported last week that Americans are cutting back on driving. Department of Energy crude oil inventories are at a six-month high, and gasoline prices around the country have retreated to about $2 a gallon.

In the face of 542,000 initial jobless claims, more than 4 million continuing claims and an unemployment rate at a 14-year high of 6.5%, U.S. companies are trying to shrink their way to profitability. Americans are hurting, and the pain worsens when they check their retirement and other brokerage accounts.

Market volatility has been breathtaking, with the VIX spiking above 80 on Thursday as the Dow Jones Industrial Average broke its Oct. 10 low. For the five trading days ending Thursday, the Dow Industrials lost 14.4% of its value, and the S&P 500 slumped 17.4%.

Over the same period, the average energy and natural resources fund tracked by Ratings dropped 23.2%. The spot price of West Texas Intermediate crude oil has crashed 65.8% to $49.62 per barrel from its 2008 high, with 14.8% of the decline coming last week.

The worst-performing energy fund last week was the Direxionshares Energy Bull 3X Shares (ERX). The fund, which has only been trading since Nov. 6, was chopped in half, losing 49.37% for the week. The fund employs 300% leverage to the return on the Russell 1000 Energy Index.

With just 150% leverage, the ProFunds Oil Equipment, Services, & Distribution UltraSector ProFund (OEPIX) pumped out a loss of 38.85% for fund holders. Oil drillers make economic decisions about the viability of their projects based, in part, on price expectations of oil. Low oil prices are bad news for fund holdings of Helix Energy Solutions Group (HLX - Get Report), off 56.14%; Crosstex Energy (XTXI), down 46.92%; ION Geophysical (IO), off 49.39%; and Hercules Offshore (HERO), down 42.70% for the period.
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ERX $28.96 0.00%
ERY $28.64 0.00%
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