Kent Thune
4 min read
In This Article:
Crude oil prices have been on a rollercoaster ride in recent weeks as tensions escalated between Israel and Iran, peaking with U.S. airstrikes on Iranian nuclear facilities and dropping sharply on news of a possible cease-fire.
The United States Oil Fund (USO), the $1.4 billion ETF tracking West Texas Intermediate (WTI) crude, spiked more than 6% during intraday trading on June 23, only to fall just as fast when Iran’s response appeared restrained, easing fears of a full-blown regional crisis.
While headlines moved markets in dramatic fashion, this episode offers a broader lesson for investors, especially retirees who rely on energy stocks and ETFs for steady dividends: Short-term volatility is common in commodity-linked sectors, and staying focused on long-term fundamentals and portfolio diversification is critical.
The energy market's recent volatility, with oil spiking more than 10% in less than two weeks, then giving all those gains back in two days, reflects the speed and severity of geopolitical risks. Here’s a quick rundown of how events unfolded.
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June 11: The U.S. announced the partial evacuation of embassies in the Middle East, sparking fears of regional escalation. Oil prices spiked on concerns about supply disruption.
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June 12: Israel launched airstrikes against Iranian military and infrastructure sites, escalating tensions significantly. Crude oil rose sharply as traders priced in the possibility of broader conflict.
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June 22 (overnight): The U.S. bombed suspected Iranian nuclear sites, pushing crude to its highest price point since early spring.
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June 23 (morning): As markets opened, Iran’s measured response, avoiding extreme retaliation or Strait of Hormuz disruption, caused oil prices to plunge rapidly, as traders breathed a sigh of relief that the worst-case scenario appeared unlikely.
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June 24: USO still traded at about $72.50 per share, around 1% higher than its price June 10, before the Israel-Iran escalation.
The USO ETF captured this swing vividly: from a sharp rally to nearly a full reversal, highlighting the risk of trading based on geopolitical headlines alone.
The broader energy sector fund, the Energy Select Sector SPDR Fund ETF (XLE), also saw wild swings, although not as pronounced as ETFs that track crude oil prices.
Commodities like oil, along with precious metals like gold, often serve as diversification tools for portfolios, particularly during times of inflation or geopolitical uncertainty. But they come with a tradeoff: volatility.
