Crude Oil Price Volatility Offers a Lesson for ETF Investors

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.

Timeline of Crude Oil Price Volatility: June 11 to June 24

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.

• 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.
• 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.
• June 22 (overnight): The U.S. bombed suspected Iranian nuclear sites, pushing crude to its highest price point since early spring.
• 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.
• 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 Are Volatile But Still Valuable Tools

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.

Oil reacts quickly to real-time supply disruptions, perceived threats to shipping lanes or unexpected demand shifts.

Gold, too, as measured by the SPDR Gold Shares ETF (GLD), has moved sharply in recent weeks based on central bank signals and global conflict headlines.

Commodity ETFs like USO or GLD are not inherently stable, and they require short-term caution and long-term patience.

While commodities can reduce correlation to traditional asset classes like stocks and bonds, they should not be oversized in conservative or income-oriented portfolios. Their volatility is a feature, not a benefit, which means understanding their role is key to using them wisely.

Dividend Investors: Stay the Course, But Stay Diversified

For many retirees and income-focused investors, the energy sector remains a core component of a dividend strategy. Companies like Exxon Mobil Corp. (XOM), Chevron Corp. (CVX) and many midstream pipeline operators offer historically strong and reliable payouts, often outpacing inflation.

However, relying too heavily on energy exposes portfolios to the kind of volatility we’ve seen in recent days. 

Key Reminders

• Stick to quality: Focus on large, financially stable dividend-payers within energy.
• Don’t overconcentrate: Consider balancing energy exposure with utilities and financials, which also offer consistent income.
• Layer in fixed income: Treasury bonds, high-quality corporate debt and bond ETFs can add stability.
• Maintain a long-term view: Volatility will come and go, but income investors succeed by staying invested and diversified.

The takeaway? Energy investments are still valuable for income generation, but they should exist as part of a broader strategy, not dominate it.

Final Thoughts on Oil’s Surge and Investing in Energy

The recent surge and collapse in oil prices, as captured by the USO ETF, is a vivid reminder that geopolitical events can move markets sharply and unpredictably. For traders, these moves may offer opportunity but, for long-term investors—especially retirees focused on income—staying grounded in a diversified portfolio is the most prudent path.

Stepping back from the last two weeks of chaos, XLE is still up about 1% for the year and offers a solid 3.5% yield.

Energy stocks remain attractive for their dividends, but they’re best used as one piece of a diversified income plan, supported by other resilient sectors and reliable fixed-income exposure. In an uncertain world, big-picture thinking is the best defense against short-term shocks.

Disclaimer: This article is for informational purposes only and does not constitute financial advice. Investing in ETFs involves risks, and investors should carefully consider their investment objectives and risk tolerance before making any investment decisions.

At the time of publication, Kent Thune did not hold a position in any of the aforementioned securities.