Oil ETFs Rally On Geopolitical Tensions

Oil prices have had a good week, as increased concerns in the Middle East caused investors to brace for a supply disruption. Although Energy Information Administration (EIA) data showed a higher-than-expected weekly increase in crude inventories, the markets shrugged off inventory build fears owing to geopolitical worries.

What’s Impacting Prices?

Official data from the Energy Information Administration (EIA) showed a weekly increase of 3.3 million barrels for the week ending Apr 6, against analyst expectations of a decline in inventories of 189,000 barrels. Record high domestic production and surging imports led to the massive build. However, given that weekly EIA data is quite volatile, it did not impact investor sentiment to a great extent.  

Talks between OPEC member nations and Russia to extend the production cut deal over the next 10 or 20 years have been a positive factor for crude prices in recent weeks. However, the latest trends in the space go to show that oil is being driven by more than just demand factors or OPEC.  

Following a chemical attack on Syria, there has been a heated exchange of words between global leaders, questioning Russia and Iran’s support to the Syrian president. President Trump threatened Russia of striking missiles on Syria, in response to Russian ambassador’s threat to strike down any American craft attacking Syria. Although he later stated that an attack is not imminent, worries in the region are greatly driving crude prices.

Moreover, tensions in Saudi Arabia are on the rise. Reports of a loud blast near the Saudi capital Riyadh unnerved investors. Saudi air defense forces intercepted at least three ballistic missiles fired by Yemen’s Houthis, aimed at Saudi cities. As a result, investors fearing a supply disruption are driving crude higher.

Let us now discuss a few ETFs focused on providing exposure to the space.

United States Oil Fund (USO – Free Report)

This fund focuses on providing exposure to WTI crude by investing in listed crude futures and other oil-related futures contracts, and it may also invest in forwards and swaps.