Oil ETFs are attracting new attention to the Israeli-Iran conflict

Oil prices and oil ETFs surged sharply on Friday following the surprising Israeli airstrikes in Iran, sparking fears of wider regional conflicts that could disrupt global energy supplies.

West Texas Intermediate (WTI) crude, a US oil benchmark, surged by 14% overnight before replenishing profits. By noon, prices had risen by about 7%, with trades close to $72.50 at a level not seen since January. Global benchmark Brent crude also jumped to around $74 per barrel, the highest since April.

The rally promoted oil-related ETFs highly. US Petroleum Fund (USO)tracking WTI futures US Brent Oil Fund (BNO)tracking Brent Futures, each gaining 7% that day. Both funds have risen about 6% per year after travelling on Friday, turning them into positive territory that year.

The sudden rebound comes just weeks after oil prices collapse. WTI briefly fell below $57 in May amid a weakening demand and growing supply. The basic supply demand outlook has not changed significantly, but it has focused on geopolitical risks.

While Israel’s overnight strike did not damage Iran’s oil infrastructure, Israeli officials warned that there is a high possibility of more attacks occurring in the coming days. It has a market for the possibility of future damage to Iranian facilities or for the possibility of a retaliatory strike by Iran against a major oil producer neighbour like Saudi Arabia.

They also fear Iran will target infrastructure elsewhere in the region and attempt to disrupt shipments through the Strait of Hormuz, a key chokepoint for global oil transport. An estimated 20 million barrels of oil per day (20% of the world’s supply flows through the straits).

Energy Stock also acquired a lift from the rally. Energy Selection Sector SPDR Fund (XLE) It rose slightly above 1% on Friday, bringing profits from the start of the year to around 3%.

As geopolitical situations evolve, oil and energy ETFs such as USO, BNO and XLE could serve as vehicles for investors considering trading or hedging within the volatility of the energy market.

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