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Oil And Associated ETFs Rally On Tanker Explosion

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Oil prices rose as much as 4% on Thursday following attacks on two tanker ships off the coast of Iran that gentrified fears of conflict in the Middle East after a sequence of strikes last month.

Oil prices spiked after two vessels were seemingly attacked in the Gulf of Oman, one of the world’s most important shipping lanes, today, but have since softened some.

The tanker ships, the Front Altair and the Kokuka Courageous were both hit this morning, forcing their crews to be evacuated. Mapping data shows that both ships suddenly halted this morning…. a month after a similar attack on four boats in the area.

The ship’s operator, Singapore-based BSM Ship Management, stated that the Kokuka Courageous was approximately 14 nautical miles from the coast of Iran.

“The Kokuka Courageous remains in the area and is not in any danger of sinking. The cargo of methanol is intact,” the spokesman said in a statement.

The second tanker, the Front Altair, was also attacked while sailing between the UAE and Iran, the Norwegian Maritime Agency added in a statement.

While no one has claimed responsibility for the attacks, at least one U.S. believes Iran is at fault, although President Hassan Rouhani said in a speech on Iranian TV:  “Security is of high importance to Iran in the sensitive region of the Persian Gulf, in the Middle East, in Asia and in the whole world. We have always tried to secure peace and stability in the region.”

Despite claims by Iran that it was not responsible, the attacks occurred amidst a burgeoning standoff between the U.S. and Iran a year after President Donald Trump pulled out from the 2015 Iran nuclear deal and reinstituted heavy sanctions on the country. Under the deal, signed with international powers under the Obama administration, Iran was supposed to see financial relief in exchange for limits to its nuclear program.

As the U.S. attempts to bring Iran’s total exports to nothing, Iran has responded to the sanctions by threatening to ditch its obligations under the nuclear deal.

As the U.S. benchmark oil futures jumped over $53 a barrel, the United States Oil ETF (USO) rallied 3.3%, putting it in the spotlight for investors looking into buying oil via funds.

The investment objective of USO is for the daily changes in percentage terms of its shares’ NAV to reflect the daily changes in percentage terms of the spot price of light, sweet crude oil delivered to Cushing, Oklahoma, as measured by the daily changes in price of USO’s Benchmark Oil Futures Contract, less USO’s expenses.

Todd Sunderland, Head of Risk Management & Head of Quant Strategies with Cushing Asset Management,  said today’s attacks highlights the fragility of the global supply chain and the importance of domestic supply.

“In theory, this highlights the importance of domestic companies and their assets, with the added point that we’re ‘not done,’ since it’s important to note that the U.S. exports 2-3 million barrels/day, but we also import around 7 million barrels/day,” Sunderland said. “We’re still very much a net importer.”

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