While ETFs sometimes turn off daily traders and speccy enthusiasts given they tend to be on the whole a bit more tame, those tied to commodity fluctuations tend to be a bit more exciting – and in the current backdrop, oil ETF investors at home and abroad are raking it in.
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Take Betashares’ Australian-based currency hedged oil ETF, ticker code ASX: OOO – it’s up +110% YTD and up +30% over the last month as fresh waves of volatility in the Middle East have supported Brent Crude prices in the last few weeks.
Those fresh waves of volatility look like fresh strikes between the US and Iran, yes, but more worryingly for investors – or more exciting, if you’re in oil – now Yemen’s Iran-backed Houthis are attacking Saudi Arabian oil and gas facilities, with one major pipeline in the Arabian Kingdom now shuttered.
The situation here is a bit of a war within a war – Iran-backed Houthis have long been participating in an often forgotten Yemeni Civil War where Saudi-backed forces have long been present in the country. Add in the complicating factors of the US and Israel, and now this long-running war has merged with the fresher US-Iran war.
It all gets a bit tangled trying to explain it too deeply, but here’s the main point: Brent Crude prices soared to US$108/bbl overnight, threatening yet another wave of global inflation.
In the minds of many analysts and watchers alike, this all but confirms beliefs major western central banks are going to have to raise interest rates further.
(Thus the miserable mood on the ASX of late, coupled with whatever the hell AI companies were talking about over the weekend.)
I’ve selected a ten-year Brent Crude chart below to highlight the fact that oil prices haven’t been this high since refineries and FPSOs all over the world were restarted after the initial shock of COVID, right as supply chains collapsed – leading to the original bout of global inflation we’re still battling years later.
Of course, if you’re in oil ETFs, you probably don’t care. Or at least, you’ve managed to offset some pain from other parts of your portfolio. And it’s not just in Australia we’re seeing this.
One of the USA’s most popular ETFs, the United States Oil Fund LP (USO), is up +134% over the last year and up +25% over the last month.
So how long can the good times last for oil ETF investors? While the story might soon become one of swing trading more than perpetual growth up and to the right, the only real major risk to the value prop is that there’ll be peace in the Middle East.
Make of that what you will.
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