The geopolitical shockwaves and the oil price surge are already being felt across the ETF world, and early trading on Monday suggests that investors are anticipating more than just a short-term headline-driven move.
With oil tanker traffic effectively halted through the Strait of Hormuz and insurance terms being tightened due to rising conflict risks, markets are already factoring in the chance of real-world disruptions to the global oil market. Brent oil futures leapt above $82 per barrel before giving up some ground, while WTI oil futures saw a significant jump as analysts warned that millions of barrels per day are currently at risk of being left high and dry until the situation is resolved.
ETF investors didn’t take long to respond.
Energy ETFs Jump In Pre-Market
The overall energy space saw significant jumps across the board on Monday.
The Energy Select Sector SPDR Fund (NYSE:XLE) and the Vanguard Energy ETF (NYSE:VDE) saw significant moves, rising almost 2% each. These funds tend to benefit from rising realized oil prices that directly flow into upstream companies’ earnings.
More aggressive exposure is seeing an even sharper move. The SPDR S&P Oil & Gas Exploration & Production ETF (NYSE:XOP) was up over 3% at the time of publication. Exploration and production companies tend to be more affected by movements in spot crude oil and thus see their margins, and subsequently their shares, expand rapidly with spikes in oil prices.
Analysts at Wood Mackenzie said that oil prices could cross $100 per barrel if the tanker freeze is not “quickly restored,” according to Yahoo Finance. If oil rises towards $100 per barrel, analysts expect cash flow estimates for companies focused on upstream production to significantly increase. This time around, unlike the brief conflict between Israel and Iran in 2025, there is an actual tanker disruption to respond to.
Commodity ETFs Surge Even More
Futures-Based Oil ETFs are seeing the largest moves.
The United States Oil Fund (NYSE:USO) was up over 6%, reflecting the large move in front-month WTI oil futures contracts. Meanwhile, the United States Brent Oil Fund (NYSE:BNO) rose by over 7%, which reflects the large move in Brent oil futures.
If concerns over oil supplies persist, futures curves could tilt further into backwardation (near-term contracts trade above longer-dated ones), which would improve the roll yields of oil futures funds such as USO and BNO. This would give them an even larger tailwind than just the move in spot oil. But it also means if flows normalize, returns could unwind just as quickly.
A Broader Macro Ripple
Gold and the US Dollar are also rising, indicating a risk-off environment lurking behind the energy rally.
The SPDR Gold Shares (NYSE:GLD) climbed alongside crude, reflecting classic flight-to-safety behavior. A jump in oil prices and safe-haven assets may indicate a threat of rising inflation, which could impact rates and overall equity ETFs.
For now, though, energy is the clear winner.
The big question for ETF traders is not so much whether oil prices can jump higher, but whether tanker traffic can resume quickly to make this just another short-lived volatility episode, or whether we are facing a real supply shock.
If the latter, Monday's jump may be just the opening act; otherwise, the rally may not last.
Photo: Mohamad Reza Jamei/Shutterstock
