Iran war oil trade gets harder as crude retreats and energy profits surge
Oil-linked funds and refiners gained from the conflict, but falling crude prices show how quickly peace hopes can reshape the trade.
By Maya Okafor · Markets Writer
· 3 min read
The Iran war oil trade has delivered outsized gains for energy investors, as recent earnings from ExxonMobil, Chevron and Valero show. But crude prices fell as prospects for an agreement and a reopening of the Strait of Hormuz improved, leaving the rally exposed to rapidly changing geopolitical headlines.
CNBC reported that ExxonMobil’s quarterly profit doubled from a year earlier to $14.5 billion, while Chevron’s net income rose close to 400%. Valero’s quarterly earnings increased more than 400%, and Chevron said profit in its refining business rose 500%.
Those results followed a sharp move in the underlying commodity. U.S. crude futures averaged more than $92 a barrel from April through June, up 27% from the prior quarter, CNBC said. Since early March, oil had traded in a broad range, peaking near $120 a barrel and falling as low as $72.
Why is the Iran war oil trade getting harder to hold?
Oil prices include a risk premium when traders fear that conflict could restrict supply or shipping. The Strait of Hormuz is central to that calculation: BBC reported in March that roughly one-fifth of global oil and gas normally moves through the waterway, and that traffic had nearly halted during the conflict.
That premium can fade when markets see signs of de-escalation. CNBC reported that, as of the Friday cited in its report, U.S. crude traded below $85 a barrel and Brent was around $90. Both had fallen more than 5% over the preceding week as investors bet on improving conditions in the Middle East.
The same sensitivity was visible earlier in the conflict. On May 28, CNBC reported Brent at $96.29 a barrel and West Texas Intermediate above $90 after fresh U.S.-Iran strikes. Investec commodities head Callum Macpherson told CNBC that contradictory signals from Washington and Tehran made the market difficult to assess. He said oil was unlikely at that point to return to the pre-conflict $60-to-$70 range without confidence that the war had ended and would not flare up again.
Which funds benefited from the oil rally?
CNBC identified the United States Oil Fund, Invesco DB Oil Fund and United States Brent Oil Fund as vehicles tied to crude-futures exposure. For stock exposure, it named the Energy Select Sector SPDR Fund, which tracks a broad group of energy companies, and the VanEck Oil Refiners ETF, which focuses on refiners. An ETF is a fund that trades on an exchange, and its holdings can be tied to shares, futures contracts or other assets depending on its mandate.
According to CNBC’s report, year-to-date returns stood at 87% for USO, 78.1% for BNO, 76% for DBO, 44.6% for CRAK and more than 30% for XLE at the time of publication. Those numbers describe past performance during an unusually volatile period, not a prediction of where oil or those funds go next.
ETF.com’s Dave Nadig told CNBC that short-term trades based on conflict headlines amount to speculation and that most buy-and-hold investors struggle to time such markets. His view is an assessment, but the price swings illustrate the underlying issue: a war-driven spike differs from a lasting case based on oil supply and demand.
This story draws on original reporting from CNBC.
