The Surprising Connection Between Solar Stocks and Crude Oil Price
Commodities / Solar Energy Dec 27, 2014 - 12:46 PM GMTBy: Investment_U
Rachel Gearhart writes: The impact of the drop in oil prices can be seen across the market. But there’s one affected area that surprises investors the most: solar stocks.
This week’s chart compares U.S. crude futures to the Guggenheim Solar ETF (NYSE: TAN) over the past three months.
Since hitting $107 per barrel in June, oil prices have fallen dramatically. Since September - when the selling really gained steam - crude has dipped by 25%.
During that same period, the Guggenheim Solar ETF also dropped by nearly 25%.
So what does the price of oil have to do with the future demand of solar energy?
Seemingly, nothing.
But many analysts believe that investors have a hard time separating oil from its blanket energy sector. After all, they argue, low oil prices mean that people are less inclined to look at energy alternatives like plug-in cars... or solar panels for their roofs.
Therefore when oil prices dip, the entire energy sector (specifically solar energy) is also dragged down.
Also, some mutual funds and ETFs hold stocks in both solar and oil companies. That means as oil prices drop and investors cash out their profits, the added selling pressure pushes the shares held by the funds even lower.
Solar stocks may have taken a swan dive with oil prices, but that just created an excellent buying opportunity. Analysts say that the U.S. solar market is growing and that solar demand in the U.S., China and India is continually increasing. So grab your Ray-Bans - it’s looking like a sunny 2015 for energy investors.
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