With escalating tensions over Iran and the threat of an oil disruption occurring this year gradually getting priced into oil, it’s worth entertaining the idea that consumers may face some serious headwinds as energy costs rise due to factors completely outside their control.
Oil itself has diverged substantially from other commodities, which have languished in the face of a slowdown in China and austerity measures taken in Europe. [Oil ETFs Rise on Iran Tensions]
With tensions only increasing in recent weeks due to Iran’s war games on the Strait of Hormuz and threats of disrupting oil transportation, it seems likely that energy prices will remain relatively elevated all year.
As a reminder, a rising price ratio means the numerator/XLY is outperforming (up more/down less) the denominator/XLE.