The ongoing war between the U.S. and Iran continues to propel oil prices higher. Brent crude briefly approached $100 a barrel on Tuesday, while tanker flows through the Strait of Hormuz remain below normal. And Goldman Sachs has said that oil prices could hit $120 per barrel if attacks on Middle East shipping escalate
The Strait of Hormuz typically handles roughly one-fifth of global oil and LNG shipments, according to the International Energy Agency (IEA).
As crude prices remain elevated, here are the ETF opportunities offering the most direct exposure to the ongoing oil-supply shock.
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BNO: the Cleanest Brent Bet
The United States Brent Oil Fund (NYSE:BNO) could be one of the most direct ETF plays on the current geopolitical risk. Unlike equity ETFs, BNO uses Brent futures to track daily changes in Brent crude prices. That makes it particularly relevant when the market is pricing a supply disruption centered on the Middle East.
The caveat is that BNO does not own physical barrels. Its performance can therefore diverge from spot Brent over longer periods because of futures-market dynamics and rolling contracts.
The fund jumped 2.14% pre-market Tuesday in response to the escalation.
XLE: Bringing Exxon and Chevron Into the Trade
For investors looking beyond crude itself, the Energy Select Sector SPDR ETF (NYSE:XLE) provides concentrated exposure to major U.S. energy companies.
Exxonmobil Holdings Corp (NYSE:XOM) accounts for nearly 20% of XLE, while Chevron Corporation (NYSE:CVX) represents another 15%. ConocoPhillips (NYSE:COP), Marathon Petroleum Corp (NYSE:MPC) and Valero Energy Corp (NYSE:VLO) are also among its largest holdings. The fund has 21 holdings and charges a 0.08% expense ratio.
That composition matters because sustained higher oil prices can translate into stronger earnings and cash flows for producers, although refiners can face a different margin equation if crude costs rise sharply.
The fund was up 1.13% pre-market Tuesday.
XOP: A Higher-Beta Energy Play
The SPDR S&P Oil & Gas Exploration & Production ETF (NYSE:XOP) takes a more targeted approach. About 63% of the portfolio is allocated to exploration and production companies, with another 30% in refining and marketing. Its modified equal-weight structure means investors get considerably less concentration in mega-cap giants than with XLE.
That makes XOP an intriguing vehicle if investors believe a prolonged oil-price surge will increasingly benefit smaller and mid-sized producers.
The ETF gained 1.44% on Tuesday during the pre-market session.
USO: A WTI Angle
The United States Oil Fund (NYSE:USO) provides exposure to light, sweet crude through WTI futures rather than Brent. It could therefore appeal to investors expecting the supply shock to feed into U.S. crude prices as well. The fund was up 2.1% pre-market Tuesday.
The bigger takeaway is that a Hormuz shock doesn’t create one oil ETF trade. BNO offers direct Brent exposure, USO targets WTI, XLE captures large integrated energy companies and XOP offers more concentrated exposure to producers. The winner could depend on whether the crisis remains a short-lived risk premium or becomes a prolonged physical supply shock.
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