In a May 15 Barchart article that asked if there was more downside in crude oil, I cautioned:
The geopolitical landscape remains highly tense, with potential hostilities in the Middle East and other regions. Any geopolitical surprises could ignite a recovery rally in crude oil futures, but so far in 2025, the price has been falling in a very volatile world.
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Nearby NYMEX crude oil futures were at $63.42 per barrel on May 14. In late June, the price was only slightly higher after a volatile period. While the war in the Middle East posed the potential for oil prices to rise above $100 per barrel, the energy commodity’s rally ran out of upside steam.
June 13 was a bullish turning point for crude oil’s price, but the rally ran out of steam
Israel’s June 13 attack on Iran caused NYMEX crude oil prices for August 2025 delivery to rise to a new high for 2025.
The daily year-to-date chart shows the June 13 rally that led to a high of $75.50 on June 16. Meanwhile, The U.S.’s June 21 bombing of Iran’s nuclear infrastructure caused the energy commodity to rise to another new high of $78.40 per barrel before correcting. However, the ceasefire on June 13 sent prices back to the $65 level on June 25.
Supply concerns rose with hostilities
The U.S. policy under President Trump has been that Iran will never have a nuclear weapon. After negotiations failed and a sixty-day deadline passed, Israel made the first move to attack Iran’s nuclear facilities and clear its airspace. The United States attempted to finish the job on June 21 with its bunker-buster weapons that can drill deep into the earth to eliminate underground nuclear enrichment facilities.
Iran has been at odds with Israel and the U.S. for forty-six years since the 1979 Islamic Revolution. Iran has sought nuclear power and weapons over the past years. The latest round of negotiations failed, causing Israel and the United States to bomb Iran’s nuclear infrastructure.
The Strait of Hormuz is a chokepoint that could ignite oil prices
Iran is an OPEC member as it is a leading oil-producing country.
The chart shows that Iran is the world’s eighth-leading oil-producing country, behind Brazil and ahead of the United Arab Emirates. Ironically, Iran is the current President of the international oil cartel. With an output of over 3.3 million barrels per day, Iran is the fourth-leading OPEC+ producer.
Future war between Israel and Iran, with U.S. involvement, could invariably cause supply concerns.
The Straits of Hormuz is a critical petroleum chokepoint, where over 20% of the world’s crude oil and 30% of the world’s LNG travel through daily from producers to global consumers. The Straits of Hormuz is a narrow waterway connecting the Persian Gulf and the Gulf of Oman bordering Iranian territory. An Iranian military blockade of the Straits or the sinking of ships carrying oil or LNG in the area could cause significant supply concerns, pushing crude oil prices substantially higher.
Brent prices could outperform WTI prices
The West Texas Intermediate crude oil contract trades on the CME’s NYMEX division and is the benchmark for light sweet crude oil from the United States, the world’s leading producer, and North America. The Brent North Sea crude oil contract traded on the Intercontinental Exchange, serves as the benchmark for crude oil from Europe, Africa, Russia, and the Middle East. While the WTI price reflects U.S. crude oil, the Brent price serves as the global benchmark and is more sensitive to events in the Middle East and supply concerns.
WTI is a slightly lighter and sweeter crude oil compared to Brent, making it more desirable for gasoline processing. Meanwhile, Brent is more appropriate for distillate refining as it has a slightly higher sulfur content.
Since the April 9 tariff-inspired lows, heating oil futures have outperformed gasoline futures despite the seasonal strength in gasoline at the start of the 2025 peak driving season. Heating oil futures are a proxy for distillate products.
WTI August crude oil futures prices rose 44.8% from $54.13 on April 9 to $78.40 on June 23.
Over the same period, August Brent crude oil futures rose 40.2% from $58.05 to $81.40 per barrel, slightly underperforming the WTI futures. However, the outperformance of distillate futures is a signal that a future escalation of the conflict with Iran could cause Brent futures to explode higher.
Gasoline futures for August delivery rose 30.4% from the April 9 low of $1.8369 to the June 23 high of $2.3950 per gallon wholesale. Gasoline underperformed WTI and Brent futures.
Over the same period, heating oil futures, the proxy for distillate products, rose 41.7% from $1.8851 to $2.6706 per gallon wholesale, outperforming gasoline due to distillate supply concerns, signaling that Brent could become far more sensitive to escalating hostilities in the Middle East and the potential for problems in the Straits of Hormuz.
BNO is the Brent crude oil ETF product
If Brent crude oil is going to become highly volatile over the coming days, weeks, and months, the United States Brent ETF product (BNO) is a tool for investors and traders seeking exposure to the Brent North Sea Crude oil benchmark.
Brent futures rallied 40.2% from the April 9 low to the June 23 high.
The chart shows the 34.8% rise in the BNO ETF, moving from $24.71 to $33.33 per share over the period. At around $31.50 per share, BNO had over $92.7 million in assets under management. BNO trades an average of over 1.30 million shares daily and charges a 0.94% management fee. While Brent and WTI crude oil futures trade around the clock, BNO and other ETF products on the U.S. stock market only trade during when the stock market is open. BNO can miss highs or lows in crude oil futures during off hours.
WTI and Brent crude oil prices have not traded above $100 per barrel since July and August 2022. Keep an eye on events in the Straits of Hormuz and heating oil futures, which are highly sensitive to the Brent benchmark, for clues about the path of least resistance of oil prices over the coming days and weeks. While the situation has calmed and oil prices have returned to pre-June 13 levels, any round of hostilities could quickly ignite a rally. Expect lots of price volatility, and you will not be disappointed.
