Oil Surges, Tanker Rates Soar: ETFs in Play

Stocks have been volatile, while global yields and oil prices have risen sharply over the past few days as the conflict in the Middle East shows no resolution in sight.

The war, now in its seventh month, has had an enormous impact on two particular areas: tanker shipping and oil prices, with Iran choking off the Strait of Hormuz, a key corridor for roughly 20% of the world's oil exports.

Shipping rates soar as Middle East tensions disrupt trade

The collapse of tanker traffic through the Strait of Hormuz has sent crude oil tanker shipping rates soaring.

Due to rising risks in the Red Sea and around the Persian Gulf, many tankers are avoiding these chokepoints and taking the long detour. These journeys are taking weeks longer, tying up the global fleet. At the same time, marine insurance companies have raised their fees dramatically.

These global supply chains form the backbone of world trade. About 90% of the world's goods are transported by sea, according to the FT. With all these disruptions, shipping rates have surged.

The Breakwave Tanker Shipping ETF (BWET), which provides exposure to crude oil tanker freight rates, has skyrocketed 3,680% year-to-date. It has been rising since late 2025 due to Middle East tensions.

Its sister fund, the Breakwave Dry Bulk Shipping ETF (BDRY), had skyrocketed in 2021 due to disruptions caused by the pandemic. It is now up about 78% in 2026.

Oil prices surge as supply disruptions deepen

Oil prices have surged again this week after Saudi Arabia shut down its East-West crude oil pipeline following drone strikes that hit the pipeline, causing fires and injuries. This pipeline had been Saudi Arabia's main channel for bypassing the Strait of Hormuz.

Since the war began, the United States Oil ETF (USO) has outperformed the move in spot crude. It has surged 133% year-to-date, whereas WTI has gained about 75%. However, over the long term, USO has generally underperformed crude because of contango, where near-term contracts trade at lower prices than further-out contracts.

This means the fund is usually selling low and buying high every time it rolls expiring front-month contracts into the next month. Contango is the normal state for physical commodities like oil due to the cost of carry, including storage, insurance and handling costs.

But since the war began, the oil market has been in backwardation, as near-month contracts have been more expensive than later-month contracts on expectations that the disruption would be temporary. This benefits USO because each month, the fund sells its expiring near-term contracts and replaces them with cheaper, later-month contracts.

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This article originally published on Zacks Investment Research (zacks.com).

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