Energy ETFs to Consider as Global Conflicts Unsettle Oil Markets

Energy ETFs to Consider as Global Conflicts Unsettle Oil Markets

The wars in Ukraine and Gaza may not immediately affect energy stock prices if history is an indicator.

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Reviewed by: etf.com Staff
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Edited by: etf.com Staff

War, what is it good for? “Absolutely nothing,” said the iconic 1970 song by Edwin Starr. Back then it was Vietnam, and today it is Ukraine, Israel and Hamas, and many other geopolitical hot spots. Investors know that blocking out wars human tragedy is difficult. 

However, one area of the markets that tends to get intriguing when war or the threat of it exists, especially when it involves the countries in conflict, is oil.

Specifically, ETFs tied to oil or energy stocks tend to attract more eyeballs at these times. Yet oil’s price is fickle, and for the market to get in sync with realities on the ground can take a long time. At other times, oil can rally or crash in less time than it takes to say Organization of Petroleum Exporting Countries (OPEC).

So as 2024 begins with one long-tenured war (Ukraine-Russia) and another on the verge of expanding to multiple fronts (Israel-Hamas-Hezbollah, et. al.) the fact that the spot price of Brent Crude (international oil, versus the U.S.-based West Texas Intermediate oil price) is again at a familiar resting spot makes this a time for ETF investors and investment advisors to pay attention. There are many energy-based ETFs, but here are a few that may track how events are impacting oil and related ETFs. 

Energy ETFs come in many forms 

TheUnited States Brent Oil Fund LP (BNO)tracks the price of that closely followed oil price via an ETF that has been around since 2010, yet it has only $144 million in assets. BNO tracks the spot price of Brent Crude oil, a key measure of energy markets, via ownership of the next month’s ICE futures contracts. This ETF distributes a K-1, as it is structured as a limited partnership. BNO is about flat for the past 12 months, but its annualized, 5-year return is 12.9%. 

Brent oil was sitting around $78 on Friday, down from its 2023 high of about $95 but about the same as last year’s bottom level in May. So technicians may see a “double bottom” formation. 

These patterns can historically lead to additional increases but have more recently petered out. , Since the start of 2022, Brent has bottomed in this area several times, but each of the subsequent rallies was limited in price, time or both. 

For investors who prefer to invest in stocks, but seek to benefit from a potential oil rally, ETFs like the Energy Select Sector SPDR (XLE), a $37 billion behemoth, is one of many choices investors can find in etf.com’s Tools section. 

XLE and other ETFs that focus on various segments of the energy stock space are starting to move higher. However, investors should be cautious. The market may treats energy stocks like oil-proxies, like stocks, or both. So rising energy prices in a dour stock market may not deliver as expected. 

Oil is volatile, which is like saying grass is green and water is wet. That won’t change. 

But what has changed is that ETFs provide many choices for investors and advisors to express themselves on oil and energy stocks. 

Rob Isbitts' Wall Street career spans 5 decades and multiple roles, all dedicated to providing clarity to investors by busting classic myths and providing uncommon perspective. He did so as a fiduciary investment advisor, Chief Investment Officer and fund manager for 27 years before selling his practice in 2020. His efforts now focus exclusively on investment research, education and multimedia. He started ETFYourself and SungardenInvestment to provide straightforward commentary and access to his investment intellectual property for portfolio construction, stocks and ETFs. Originally from New Jersey, Rob and his wife Dana have 3 adult children and have lived in Weston, Florida for more than 25 years.