Geopolitical Risks Lift Oil Prices: 4 ETFs to Watch

Oil prices rebounded on Aug. 27, 2026, as hopes for a near-term diplomatic breakthrough between the United States and Iran faded, raising concerns that crude flows through the Strait of Hormuz could remain restricted.

The recovery came after three consecutive sessions of losses, suggesting that the market is once again placing greater weight on geopolitical supply risks. Investors had previously been encouraged by diplomatic efforts involving Iran, Oman and Qatar, which raised hopes of a reopening of the key shipping route. With Washington now saying that it is not negotiating with Tehran, those expectations have weakened.

Hormuz Uncertainty Returns to Oil Market

The Strait of Hormuz remains at the center of the oil market's attention as the waterway historically handles around one-fifth of global oil and liquefied natural gas supplies, making any prolonged disruption a major risk for global energy markets.

Traffic has somewhat improved, but remains below normal levels, with only five commodity vessels transiting the waterway as of Aug. 25 compared with a 10-day average of 15, per Reuters. This means that the market has not yet seen a full normalization of energy flows.

Recent diplomatic efforts had encouraged traders to price in a gradual reopening, reducing the geopolitical premium embedded in crude prices. But the latest U.S. stance, in which White House press secretary has mentioned that there is no scope for negotiations at present, is now forcing investors to reassess that assumption, as stalled negotiations could quickly push oil prices higher due to renewed geopolitical tensions.

U.S. Inventories Might Instigate Oil Prices

The latest U.S. inventory data offered some support to crude prices. U.S. commercial crude inventories rose by just 95,000 barrels last week compared with expectations for a 597,000-barrel increase, according to Reuters.

That smaller-than-expected build indicates that the U.S. market is not experiencing a major oversupply despite the recent pressure on oil prices. As a result, the price of crude oil could rise further as demand stays firm or inventories begin to tighten. 

Russia Adds to Supply Risks

The global oil market is also facing supply risks outside the Middle East. A Ukrainian drone attack forced Russia's NORSI refinery to suspend crude processing, highlighting the continued vulnerability of Russian energy infrastructure amid the Russia-Ukraine war.

This could provide some support to crude prices if refinery disruptions persist or additional attacks affect Russian production and exports. Potential U.S. sanctions on Russia could also introduce further uncertainty to global energy supplies.

Oil ETFs in Focus

The changing outlook for crude prices has important implications for oil-focused ETFs. The immediate direction of oil ETFs depends on the conflict over the Strait of Hormuz. At the same time, downbeat U.S. inventory growth and continuing Russian supply risks are implying a surge in crude oil prices.

United States Oil Fund USO provides one of the more direct ETF approaches to crude oil. It is designed to track daily movements in light, sweet crude oil through oil futures contracts. It provides investors with exposure to WTI crude oil prices without having to trade oil futures directly.

 The fund has assets under management worth $ 1.74 billion. It has an expense ratio of 0.60% and trades with a daily average volume of 6.25 million shares.

Invesco DB Oil Fund DBO seeks to track the performance of WTI crude oil futures, making its returns closely tied to movements in oil prices.

It has assets under management of $246.5 million, with an expense ratio of 0.77%. The fund has a daily average trading volume of about 513,038 shares.

Energy Select Sector SPDR Fund XLE tracks the Energy Select Sector Index of the S&P 500 and invests primarily in leading U.S. oil and gas companies involved in oil exploration, production, refining, marketing and integrated energy operations.

It has $40.83 billion in assets under management and a 0.08% expense ratio. The fund is trading a massive daily average volume of 31.39 million shares.

VanEck Oil Services ETF OIH is a specialized energy ETF that invests in oilfield services and equipment companies rather than oil producers, providing exposure to the companies that supply the equipment, technology, drilling rigs and engineering services needed to extract oil and gas.

It has assets under management of $1.90 billion, along with an expense ratio of 0.35%. The fund trades an average volume of 312,336 shares.

Boost Your Portfolio with Our Top ETF Insights

Zacks' exclusive Fund Newsletter delivers actionable information, top news and analysis, as well as top-performing ETFs, straight to your inbox every week.

Don’t miss out on this valuable resource. It’s free!

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

This article originally published on Zacks Investment Research (zacks.com).

Zacks Investment Research