U.S. Oil Fund (NYSEArca: USO) on Friday traded lower for the second straight day although the energy ETF is on track for a gain of more than 1% this week.
USO was off 0.3% in choppy trade Friday after U.S. Secretary of State John Kerry made the case for military intervention in Syria.
Regional conflict in the Middle East is boosting the energy sector as uncertainty rules this area of the market. USO rose to a new 52-week high on Wednesday.
“The threat of military action in Syria could not only disrupt oil supplies in the rest of the Middle East including Nigeria, Libya and Sudan but raise alarms in the other oil exporting neighboring countries such as Iran and Iraq. Middle East accounts for about one-third of the world’s total oil’s production,” Zacks Equity Research wrote. [Energy ETFs to Capitalize on WTI and Brent Crude Oil Moves]
Oil prices have surged recently on the news of the crisis in Syria. The price per barrel has hit $112 and analysts are calling for a ceiling of anywhere between $125 – $150 per barrel. Regional conflict such as this commonly takes energy stocks higher as we saw in 2011 while the U.S. tried to keep peace in Libya.
Currently, USO moved 27% above the April low, and up 3% over the past few days, and further retaliation in Syria will cause it to soar higher, reports David Fabian for The Street. The Energy Select Sector SPDR (NYSEArca: XLE) has gained 15% on the season demand as well as current geopolitical conflict. [ETF Chart of the Day: Energy Sector]
Other oil-focused ETFs have fared well on the drama, with United States Brent Oil Fund (NYSEArca: BNO) up 4.5% this week, and 14% over the second half of 2013. PowerShares DB Oil Fund (NYSEArca: DBO) is up 1.4% this week, and 8.7% over June and July. [Deflation Pulse: Crude Oil ETFs Are Weakening]
Oil prices have already fared well coming off the Summer driving season, as low inventories were a concern. Other fundamentals supporting the run-up in oil prices include solid economic data reports from around the globe, and upbeat Fed comments. ETFs are a less volatile play on energy and have been outperforming the single companies sluggish growth and returns.
United States Oil
Tisha Guerrero contributed to this article.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.