Oil ETFs Down Despite Surging Middle East Tensions
- Crude prices fell Monday, even after US strikes on Iran and reports of possible missile retaliation.
- Traders remain cautiously optimistic that global supply will remain largely unaffected.
Oil prices dropped on Monday, even as geopolitical tensions in the Middle East escalated sharply since the weekend.
WTI crude surged as much as 4% overnight following reports that the U.S. had bombed Iranian nuclear facilities. But those gains quickly reversed, with prices last down more than 4% midday.
USO, BNO Cool as Rumors Swirl
The United States Oil Fund (USO) and the United States Brent Oil Fund (BNO), which track oil futures contracts, declined around 3% during the session.
Even reports that Iran had launched missiles at U.S. military bases in the region failed to spark a lasting rally in crude.
Traders have been closely monitoring developments in the Iran-Israel conflict, particularly after the U.S. became more directly involved with its weekend strikes. One of the biggest concerns is the possibility that Iran could attempt to close the Strait of Hormuz, a narrow chokepoint through which more than 20 million barrels of oil pass daily.
However, analysts view that scenario as a last resort. Iran itself relies on the strait to export crude, primarily to countries like China, and any disruption would risk significant blowback. The U.S. and its allies are expected to respond aggressively to any attempt to block the waterway.
Ample Supply Caps Gains
While the conflict adds a layer of uncertainty to oil markets, traders remain cautiously optimistic that global supply will remain largely unaffected. WTI and Brent are up 16% since the start of June, but they've lost 1% year to date as ample supply continues to cap broader gains.
FactSet data as of June 23, 2025. Price returns over one year are annualized. Past performance is no guarantee of future results.
The Organization of the Petroleum Exporting Countries (OPEC) has raised production multiple times this year, keeping a lid on prices.
Still, USO and BNO are up more than 7% in 2025, as the two oil ETFs benefit from favorable futures market dynamics, such as backwardation and yield earned on collateral held in Treasury securities.
