{"id":1613,"date":"2023-10-16T20:44:39","date_gmt":"2023-10-16T20:44:39","guid":{"rendered":"https:\/\/connectwithfund.com\/markets\/oil-can-still-protect-against-a-middle-east-blowup-heres-how-to-play-it\/"},"modified":"2023-10-16T20:44:39","modified_gmt":"2023-10-16T20:44:39","slug":"oil-can-still-protect-against-a-middle-east-blowup-heres-how-to-play-it","status":"publish","type":"post","link":"https:\/\/connectwithfund.com\/?p=1613","title":{"rendered":"Oil Can Still Protect Against a Middle East Blowup. Here\u2019s How to Play It."},"content":{"rendered":"
\n
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<\/p>\n

<\/p>\n<\/figure><\/div>\n

Oil isn\u2019t the hedge against Middle East turmoil it used to be. That doesn\u2019t mean investors shouldn\u2019t own crude for a little extra protection against a wider conflict.<\/p>\n

The response of the oil price has been largely muted after Hamas fighters invaded southern Israel from the Gaza Strip, murdering hundreds of Israelis and taking dozens of hostages\u2014prompting the Israel Defense Forces to respond with airstrikes on the densely populated territory and prepare for an imminent ground invasion of Gaza.<\/p>\n

\n

Futures tied to the U.S. price of crude oil spiked to around $86.50 barrel on Monday, from near $83 on Friday. That gain reversed over the next few trading days, with oil back to $83 a barrel by Thursday\u2014meaning no additional premium for the events of the past week.<\/p>\n

That makes sense. The U.S. is now a net exporter of crude and has a strategic petroleum reserve that can be used to smooth out disruptions to the global oil supply (even if it\u2019s currently less full than usual). What\u2019s more, the initial attack and response have done little to affect the supply of oil, which continues to flow. <\/p>\n

Nonetheless, oil could make sense as a hedge against geopolitical risk. Tragically, the fighting between Israel and Hamas is likely to result in significant bloodshed. Iran, Lebanon\u2019s Hezbollah, and other regional powers may feel compelled to respond. Enough escalation may even draw the U.S. into the conflict. Long-term dynamics aside, the market\u2019s knee-jerk reaction will be to send oil prices sharply higher the morning after the next bit of bad news from the Middle East.<\/p>\n

\u201cThe military conflict between Israel and Palestine over the weekend [initially] pushed oil prices up despite no immediate threats to oil supply,\u201d wrote Christyan Malek, J.P. Morgan\u2019s global head of energy strategy. \u201cWe believe this is an example of an emerging risk premium related to diminishing spare oil production capacity and we expect short term spikes to continue over the medium term while becoming more sustained.\u201d<\/p>\n

For investors, buying oil here is a trade with asymmetric near-term odds. On the one hand, oil is unlikely to fall below $75\u2014supported by the same supply\/demand dynamics that have kept the price above that level for most of 2023. But a spike to $100 a barrel is in the cards if the fighting escalates. That\u2019s a potential upside of around 20% from Thursday\u2019s $83 a barrel, but downside risk of less than 10%.<\/p>\n

There are a number of exchange-traded funds that make it easy to bet on a higher oil price. The
\n U.S. Oil Fund
\n (ticker: USO) uses futures contracts for West Texas Intermediate crude oil, the U.S. price, to gain exposure to oil prices. The
\n United States Brent Oil Fund
\n (BNO) tracks the international benchmark oil price.<\/p>\n

For investors with a greater risk tolerance looking for a higher-octane way to bet on a near-term spike in oil prices, there\u2019s
\n ProShares Ultra Bloomberg Crude Oil
\n (UCO). The ETF aims to double the daily performance of the WTI oil price\u2014whether up or down. As with any leveraged ETF, it\u2019s a trading vehicle, not a long-term investment, and typically results in losses if held over the long term due to daily rebalancing.<\/p>\n

Going long shares of oil producers\u2014whose bottom lines benefit directly from a higher price for the commodity they sell\u2014is another option. The
\n iShares U.S. Oil & Gas Exploration & Production
\n ETF (IEO) holds North America-focused oil companies, including
\n ConocoPhillips
\n (COP),
\n EOG Resources
\n (EOG), and
\n Marathon Petroleum
\n (MPC). That ETF is up more than 4% since the Friday before Hamas\u2019 attack on Israel. <\/p>\n

This is one case where a little oil could go a long way. <\/p>\n

Write to <\/strong>Nicholas Jasinski at nicholas.jasinski@barrons.com<\/p>\n<\/p><\/div>\n<\/div>\n

Read the full article here<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"

Oil isn\u2019t the hedge against Middle East turmoil it used to be. That doesn\u2019t mean investors shouldn\u2019t own crude for a little extra protection against a wider conflict. The response of the oil price has been largely muted after Hamas fighters invaded southern Israel from the Gaza Strip, murdering hundreds of Israelis and taking dozens of hostages\u2014prompting the Israel Defense Forces to respond with airstrikes on the densely populated territory and prepare for an imminent ground invasion of Gaza. Futures tied to the U.S. price of crude oil spiked to around $86.50 barrel on Monday, from near $83 on Friday.<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[39],"tags":[],"class_list":["post-1613","post","type-post","status-publish","format-standard","hentry","category-markets"],"yoast_head":"\nOil Can Still Protect Against a Middle East Blowup. Here\u2019s How to Play It. | ConnectWithFund<\/title>\n<meta name=\"description\" content=\"Oil isn\u2019t the hedge against Middle East turmoil it used to be. 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