Reward 2000 Tiger-coinsAs diplomatic talks between the United States and Iran are expected to take place later this week, President Donald Trump once again issued a warning to Iran’s leadership. In the futures market, crude oil prices fell for the first time in three days. Brent crude dropped about 2% in early London trading to around $68 per barrel, while WTI crude declined roughly 2.1% to near $63 per barrel.
Brent Crude
Among energy ETFs with exposure to oil, year-to-date performance shows that $Energy Select Sector SPDR Fund(XLE)$ has risen 18.2%, $Vanguard Energy ETF(VDE)$ is up 17.9%, $Spdr S&P Oil & Gas Exploration & Production Etf(XOP)$ has gained 13.9%, $VanEck Oil Services ETF(OIH)$ has climbed 27.3%—the strongest performer among the five, highlighting the high beta of oil-services stocks in this rally—while $Strive U.S. Energy ETF(DRLL)$ is up 16.9% year to date.
The current oil rally began in late January, when Trump repeatedly delivered hawkish remarks on Iran, U.S. forces were mobilized in the Middle East, and enforcement actions against oil tankers linked to Iran were intensified. Markets began to price in the risk of an escalation in U.S.–Iran tensions, and crude oil prices once rose nearly 7% in a single week.
On February 3, as markets judged that the situation was unlikely to spiral out of control in the near term, oil prices gave back gains from elevated levels.
On February 5, Iran confirmed that it would hold talks with the United States in Oman this Friday. The perceived probability of a near-term conflict declined, and crude oil recorded its first drop in three days. Trump subsequently made further remarks, but market reaction was limited.
WTI (U.S. Crude Futures) Price Action：
An earlier rally was also observed in early January. Iran experienced large-scale protests triggered by an economic crisis, which were met with severe crackdowns, accompanied by nationwide internet shutdowns and worsening domestic conditions. As a result, concerns over Iran’s oil supply outlook intensified, driving a phase of oil price gains.
Following the phase of oil price increases triggered by Iran’s domestic unrest, external geopolitical factors quickly took over.
In both instances of rising oil prices, the driving forces remained expectations and positioning, rather than a substantive tightening of oil supply and demand fundamentals.
Henik Fung noted that in extreme scenarios oil prices could briefly rise toward $75 per barrel. However, given weak global economic conditions and OPEC+ spare capacity of roughly 1.25 million barrels per day, the oil risk premium is more likely to remain around $15 per barrel, rather than the $25–30 levels seen in past conflicts.
On the supply side, markets are also focused on OPEC+’s policy window between April and May. Against the backdrop of paused output increases in the first quarter, whether OPEC+ opts for further production cuts or maintains current output will depend on the stability of oil prices after their pullback and on global demand conditions, which together form a key constraint on oil price volatility.
Are crude oil and energy ETFs still worth watching? Do you prefer direct exposure to oil prices, or higher-beta segments such as oil services and upstream producers? Share your views in the comments—rewards are available.
Recommended Oil-Related ETFs:
$Energy Select Sector SPDR Fund(XLE)$ : With total assets of about $35 billion, it covers leading integrated oil companies and offers the strongest liquidity. As a core energy allocation, it provides stable representation of the sector, with an expense ratio of just 0.03%, offering a significant cost advantage.
$Vanguard Energy ETF(VDE)$ : Broad exposure across the entire energy value chain with a high degree of diversification, suitable for long-term tracking of overall sector performance. Its expense ratio of 0.08% is relatively low, balancing efficiency and cost in passive allocation.
$Spdr S&P Oil & Gas Exploration & Production Etf(XOP)$ : Concentrated in oil and gas exploration and production companies, highly sensitive to oil price movements with greater volatility, making it suitable for trading-oriented or aggressive strategies. Expense ratio: 0.35%.
$VanEck Oil Services ETF(OIH)$ : Focused on oil services and oilfield equipment companies, strongly influenced by upstream capital-expenditure cycles and more leveraged to mid-to-late stages of oil price rallies. Expense ratio: 0.35%.
$Strive U.S. Energy ETF(DRLL)$ : Employs an active stock-selection strategy emphasizing cash flow and shareholder returns, with a more aggressive and differentiated profile. Despite being actively managed, its expense ratio stands at 0.41%.
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