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Oil Soars On Israel-Hamas Conflict: Sector ETFs to Gain/Lose
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Oil prices jumped more than 4% on Monday morning as news of a surprise attack on Israel by the Palestinian Islamist group Hamas sent shockwaves through global markets. The incident has triggered concerns of a broader conflict flaring up in the already volatile Middle East region, sending oil prices northbound (read: 5 ETFs to Gain on Israel Attack).
Over the weekend, Hamas launched the most significant military assault on Israel in decades, catching many by surprise. The Middle East is a key player in the global oil exploration market, making up more than 30% of the world's oil production. Any instability in the region has the potential to disrupt oil supplies and send ripples through the global economy.
Concerns of Conflict Escalation and Iran's Role
Despite no immediate oil supply disruptions, market watchers like Andy Lipow, the president of Lipow Oil Associates, warn that the initial oil market reaction is driven by fears of the conflict spreading to other regions like Iran, per a Yahoo Finance article. Iran – is both a key oil producer and a supporter of Hamas.
The concern is that the situation could finally draw Iran into the conflict, directly impacting the transit of oil through the vital Strait of Hormuz. With 40% of world exports going through the Strait of Hormuz, Rapidan Energy Group’s president, Bob McNally projects a conflict between Israel and Iran and the likely closure of this crucial waterwayto easily lead to a $5 to $10 bump in oil prices.
Though chances are high that the oil market rally is short-term nature, if Western countries now officially link Iranian intelligence to the Hamas attack, then Iran’s oil exports are likely to face downside risks.This would cause a surge in gasoline prices in America.
Against this backdrop, we highlight below a few sector ETFs that can gain/lose if oil continues to hit highs in the short term.
ETFs to Benefit
Energy Exploration – Energy Select Sector SPDR Fund (XLE - Free Report)
This is the most obvious choice. If oil price is staging an uptrend on reduced supplies, oil exploration and production stocks are sure to benefit as these companies will have a chance to pump more oil over the medium term.
Companies offering oilfield services, such as drilling, well completion, and maintenance, are also expected to witness increased demand. As oil producers ramp up their operations, they will require more services to optimize their production and operations.
Renewable Energy – iShares Global Clean Energy ETF (ICLN - Free Report)
The renewable energy sector might also benefit indirectly from the oil price rally. As oil prices rise, there could be a stronger push towards alternative and cleaner energy sources (as investors would look for other alternatives), leading to increased investment in renewables. While renewable energy infrastructure was extremely costly before, the costs have declined a lot in recent times.
Rising energy prices do not bode well for retailers as consumers’ wallets get squeezed from higher outlays on gas stations. In fact, not only oil, overall inflation will be rising, hurting consumers’ buying power. This, in turn, is likely to lead the Fed to hike rates faster all over again. Rising rates, in turn, would again weigh on consumers’ ability to shell out on discretionary items.
Companies in the refining segment benefit from lower oil prices as crude is one of their main input costs. After buying crude, refiners transform it to the finished product gasoline. Now, with crude prices rising, refiners may see a lower crack spread and their profitability may be hurt.
The airline sector also performs better in a falling crude scenario. This is especially true as energy costs form a major portion of the overall cost of this sector. So, rising crude prices are likely to curb earnings of airline companies.
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Oil Soars On Israel-Hamas Conflict: Sector ETFs to Gain/Lose
Oil prices jumped more than 4% on Monday morning as news of a surprise attack on Israel by the Palestinian Islamist group Hamas sent shockwaves through global markets. The incident has triggered concerns of a broader conflict flaring up in the already volatile Middle East region, sending oil prices northbound (read: 5 ETFs to Gain on Israel Attack).
Over the weekend, Hamas launched the most significant military assault on Israel in decades, catching many by surprise. The Middle East is a key player in the global oil exploration market, making up more than 30% of the world's oil production. Any instability in the region has the potential to disrupt oil supplies and send ripples through the global economy.
Concerns of Conflict Escalation and Iran's Role
Despite no immediate oil supply disruptions, market watchers like Andy Lipow, the president of Lipow Oil Associates, warn that the initial oil market reaction is driven by fears of the conflict spreading to other regions like Iran, per a Yahoo Finance article. Iran – is both a key oil producer and a supporter of Hamas.
The concern is that the situation could finally draw Iran into the conflict, directly impacting the transit of oil through the vital Strait of Hormuz. With 40% of world exports going through the Strait of Hormuz, Rapidan Energy Group’s president, Bob McNally projects a conflict between Israel and Iran and the likely closure of this crucial waterwayto easily lead to a $5 to $10 bump in oil prices.
Though chances are high that the oil market rally is short-term nature, if Western countries now officially link Iranian intelligence to the Hamas attack, then Iran’s oil exports are likely to face downside risks.This would cause a surge in gasoline prices in America.
Against this backdrop, we highlight below a few sector ETFs that can gain/lose if oil continues to hit highs in the short term.
ETFs to Benefit
Energy Exploration – Energy Select Sector SPDR Fund (XLE - Free Report)
This is the most obvious choice. If oil price is staging an uptrend on reduced supplies, oil exploration and production stocks are sure to benefit as these companies will have a chance to pump more oil over the medium term.
Oilfield Services – VanEck Oil Services ETF (OIH - Free Report)
Companies offering oilfield services, such as drilling, well completion, and maintenance, are also expected to witness increased demand. As oil producers ramp up their operations, they will require more services to optimize their production and operations.
Renewable Energy – iShares Global Clean Energy ETF (ICLN - Free Report)
The renewable energy sector might also benefit indirectly from the oil price rally. As oil prices rise, there could be a stronger push towards alternative and cleaner energy sources (as investors would look for other alternatives), leading to increased investment in renewables. While renewable energy infrastructure was extremely costly before, the costs have declined a lot in recent times.
ETFs to Lose
Retail - SPDR S&P Retail ETF (XRT - Free Report)
Rising energy prices do not bode well for retailers as consumers’ wallets get squeezed from higher outlays on gas stations. In fact, not only oil, overall inflation will be rising, hurting consumers’ buying power. This, in turn, is likely to lead the Fed to hike rates faster all over again. Rising rates, in turn, would again weigh on consumers’ ability to shell out on discretionary items.
Oil Refiners – VanEck Vectors Oil Refiners ETF (CRAK - Free Report)
Companies in the refining segment benefit from lower oil prices as crude is one of their main input costs. After buying crude, refiners transform it to the finished product gasoline. Now, with crude prices rising, refiners may see a lower crack spread and their profitability may be hurt.
Airlines - U.S. Global Jets ETF (JETS - Free Report)
The airline sector also performs better in a falling crude scenario. This is especially true as energy costs form a major portion of the overall cost of this sector. So, rising crude prices are likely to curb earnings of airline companies.