Market scored on Iran war oil price boom. Staying long may not be wise

The past week’s earnings from the energy sector demonstrated just how much the U.S.-Iran war has contributed to the short-term performance of major players in the oil market — and to the portfolio gains of investors who targeted stock opportunities in the sector. The sums are massive, but sitting on those gains for too long could be a mistake, according to investing experts.

ExxonMobil and Chevron reported quarterly profits on Friday that surged due to the war’s impact on oil prices, with Exxon’s profits doubling year-over-year to $14.5 billion and Chevron’s net income increasing close to 400%.

“We’re kind of firing on all cylinders, which is good, because the world needs it,” CEO Mike Wirth told CNBC’s Becky Quick on Friday.

From April through June, U.S. crude oil futures averaged over $92, a quarterly increase of 27%.

The action in refiners has been even stronger. Valero Energy‘s earnings were up over 400% for the quarter compared to last year in world that Valero estimates is still five million barrels short per day of global refining capacity and over 100 million barrels short of oil inventories. Chevron’s refining segment saw profits jump 500% amid the rise in gasoline and diesel prices.

An energy market driven by geopolitics — not only the war in the Middle East but also between Russian and Ukraine — has attracted money into oil and oil industry-related ETFs, and it has created big winners along the way. But oil prices have been turbulent this year, particularly since the on-again, off-again war in Iran started. Since early March, the price of a barrel of oil peaked at nearly $120, dipped as low as $72, and seesawed — sometimes daily — within that range.

This weekend, President Trump offered his latest comments that an end to the war may be in sight, referring to the “perimeters of a deal” and potential reopening of the Strait of Hormuz. As of Friday, U.S. crude was trading under $85 per barrel, with Brent crude around $90. Prices fell more than 5% over the past week on bets that the situation in the Middle East would improve.

That leaves a big decision for investors who have profited from the recent runup in the energy sector, investing experts say. The recent gains can largely be attributed to trades that are closer to short-term speculation than long-term fundamental analysis, and there may be better opportunities for buy-and-hold investors elsewhere in the energy sector. 

“If you’re making a play on oil because of geopolitics in a six-month period, you are not investing; you are gambling,” said ETF.com’s Dave Nadig. “[The trades were] literally intraday reactions to things blowing up in the Persian Gulf.”

Traders and investors with extensive knowledge of energy markets can time these kinds of trades right based on understanding of oil production and refining capacity, and with past experience trading through bouts of volatility. But according to Nadig, most buy-and-hold investors typically are “terrible” at market timing. “Historically, individual investors get shellacked [in this kind of environment],” he said. 

Among the big winners have been crude oil futures ETFs such as the United States Oil Fund (USO), Invesco DB Oil Fund (DBO), and United States Brent Oil Fund (BNO). At a broader level of exposure, winning trades include the energy sector index fund, State Street Energy Select Sector SPDR ETF (XLE), as well as crude oil refining trades, such as the VanEck Oil Refiners ETF (CRAK).

Nadig says the run in these energy stocks began before the outbreak of war, attracting inflows since the election of President Trump in November 2024. Year-to-date, USO has returned 87%; BNO is at 78.1%; DBO at 76%; CRAK at 44.6%; and XLE over 30%. 

“Short-term traders prefer ETFs like DBO since futures prices track more closely to spot oil prices than equities and are therefore more volatile than stock-based ETFs,” said Aniket Ullal, head of ETF research & analytics for CFRA. He cited the trailing one-year volatility for XLE is 21.1%, while for DBO it is 38.6%. 

That’s the exact thing that attracts speculators and ramps up the volatility in the ETFs themselves, Nadig said.

But for investors planning for the long term, volatile markets reacting to geopolitics are just too difficult to read, according to Bryan Armour, director of ETF and passive strategies research for North America at Morningstar. Volatility can move against investors as quickly as it has favored them, he said, adding that he has “no expectation of potential outcomes one way or another. … There are a lot of risks.”  

His advice for long-term investors seeking exposure to oil and broader energy markets: “Lower cost, better diversified, broader investment themes tend to work better,” Armour said. 

CFRA’s analysts went underweight on energy shortly after the war started back in March, based on the view that any price hikes would be short term and reactionary, Ullal said. “Our outlook for WTI crude is more in the $60 [a barrel] range. … There are other pockets of energy that we’re optimistic on,” he added.  

Ullal pointed to energy ETFs with diversified exposure that includes natural gas. “We’re more optimistic on bigger exposure to natural gas,” he said, explaining he expects natural gas to benefit going forward from AI-driven demand as more data centers go online. Infrastructure ETFs such as Alerian MLP ETF (AMLP) and First Trust North American Energy Infrastructure Fund (EMLP) hold promise, Ullal said. 

Nadig pointed to uranium and related nuclear energy ETFs, which he said attracted $5.67 billion in the time period between President Trump’s election and the start of the war. The short-term performance has not been there, with ETF trades including the Van Eck Uranium and Nuclear ETF (NLR) selling off this year. But he says it is another AI-powered trade with longer-term prospects despite the sector underperforming while the market focused on war headlines.

—CNBC’s Spencer Kimball and Pippa Stevens contributed to this report.