Oil Prices And Us Strategy
He also said his main aim is to stop Iran from getting nuclear weapons. He wrote that he would not allow Iran to have nuclear weapons or to “destroying the Middle East and, indeed, the World”. The administration has signaled that elevated oil prices are an acceptable, even beneficial, outcome of the current conflict. This means we should not expect policy moves aimed at lowering energy costs in the near term. Brent crude futures have already jumped over 15% in the last month, recently clearing the $110 per barrel mark, and this official stance will only add support. Given this, we believe the path of least resistance for crude oil is higher, as the geopolitical risk premium is likely to expand. Maintaining long positions in WTI and Brent futures or buying call options on energy ETFs is the most direct strategy. This is a significant shift from the market dynamics we observed in late 2025, which were driven more by supply and demand fundamentals than by open conflict. The ongoing war will keep market-wide volatility elevated, pressuring broader equity indices. The VIX has been stubbornly trading above 25, reflecting persistent market anxiety over the war’s potential to disrupt global supply chains and increase inflation. We see this as an opportunity to purchase protection through put options on the S&P 500 or by taking positions in volatility-linked products.Sector And Currency Implications
We expect continued underperformance in sectors that are highly sensitive to fuel costs, such as transportation, airlines, and consumer discretionary companies. Conversely, defense contractors and domestic energy producers should continue to outperform the broader market significantly. For instance, the energy sector ETF, XLE, is up nearly 20% year-to-date, while the airline index has fallen by 12%. The combination of geopolitical safe-haven demand and the US position as a top oil exporter will likely strengthen the US dollar. This creates opportunities for long positions in the dollar index (DXY) against currencies of nations that are major energy importers. This dynamic reinforces the dollar’s strength that began to build during the initial escalations we witnessed last year. Create your live VT Markets account and start trading now.
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