While the broader market was stuck in sideways trading in response to geopolitical risks after the downing of a Russian jet by Turkey, energy prices and sector-related exchange traded funds experienced their best single-day jump this month.
The broader Energy Select Sector SPDR (NYSEArca: XLE) gained 2.2% Tuesday. Meanwhile, the United States Oil Fund (NYSEArca: USO), which tracks West Texas Intermediate crude oil futures, rose 2.4% and the United States Brent Oil Fund (NYSEArca: BNO), which tracks Brent crude oil futures, increased 2.4%.
Meanwhile, WTI crude oil futures were up 2.2% to $42.7 per barrel Tuesday. Brent crude oil futures were 2.4% higher to $45.9 per barrel.
In the energy space, small-caps, exploration and services stocks were outperforming. For instance on Tuesday, the PowerShares S&P SmallCap Energy Portfolio (NasdaqGM: PSCE) jumped 5.9%, SPDR S&P Oil & Gas Exploration & Production ETF (NYSEArca: XOP) increased 3.5%, SPDR Oil & Gas Equipment & Services ETF (NYSEArca: XES) advanced 4.6%, Market Vectors Oil Service ETF (NYSEArca: OIH) rose 3.3% and iShares U.S. Oil Equipment & Services ETF (NYSEArca: IEZ) added 3.7%.
Oil-related assets were rallying Tuesday on heightened energy risks after Turkey downed a Russian jet fighter near the Syrian border. [Recovering Turkey ETF Hit With Critical Blow]
“Oil is the most affected by it. You have major pipeline infrastructure that comes through Turkey out to the Mediterranean,” John Kilduff, analyst with Again Capital, told CNBC. “You’ve got the northern Iraqi oil field controlled by the Kurds. You have a lot hanging in the balance.”
For instance, Russian oil exporters like Rosneft OJSC, Lukoil PJSC and Gazprom Neft PJSC could see prices of Urals crude blend rise from the recent lows. The heightened tensions “has the potential to disrupt Russian oil supplies via the Bosporus and Dardanelles Straits,” Ehsan Ul-Haq, a senior analyst at KBC Energy Economics, told Bloomberg.
A slightly lower U.S. dollar also supported prices Tuesday. The U.S. Dollar Index, which tracks the USD against a basket of other currencies, was 0.3% lower to 99.5. Since oil is priced in dollars, the commodity is cheaper for foreign traders as the USD depreciates.
United States Oil Fund
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Max Chen 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.