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Over the trailing one-year period, crude oil markets and, in particular, the exchange-traded fund United States Oil Fund LP (ETF) (NYSEARCA:USO), have enjoyed a much-needed and desired recovery. Although no one likes pain at the pump, rising prices indicate higher demand, which bodes well for the underlying economy. That said, the USO ETF might be rising a little too quickly.
For Tuesday’s session, the oil fund, which tracks the West Texas Intermediate index, jumped over 3.6% against Monday’s closing price. Investors reacted sharply to news from the U.S. State Department, which declared that all oil imports from Iran must cease by November, according to a CNBC report. Given President Trump’s animus towards Iran and his predecessor’s signing a nuclear deal with the nation, the announcement wasn’t surprising.
Furthermore, Trump lashed out at the former President Obama’s nuclear deal during the 2016 election’s campaign trail. The former real estate mogul promised to undo the perceived damage to America’s reputation — and he made good on his word. In early May, Trump pulled out of the deal, sending ripple effects throughout the markets. Notably, though, investors pushed the USO ETF higher before it tumbled later in the month.
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But what political experts wondered was how the current administration would roll back Iranian oil imports. A gradual decline in import volume seems the most balanced approach rather than a hard stop. Of course, balance isn’t exactly this administration’s modus operandi.
It’s obvious that President Trump wants to isolate Iran from the international community. However, his policy comes at an awkward time. Oil funds like the USO ETF have increased in price due to less-than-expected global supply. While that’s good news for oil investors, the dynamic risks a delicate economic recovery.
Expect the USO ETF to Move Even Higher
On a year-to-date basis, the USO ETF is up over 18%. This follows a strong showing in the second half of 2017, when the fund gained nearly 26%. If recent geopolitical events are anything to go by, investors should expect more profitability.
Hidden beneath the sharp leap in the USO ETF is the Supreme Court’s decision to uphold Trump’s controversial travel ban. The executive order, which affects mostly Muslim-majority nations, was a key selling point for Trump’s voting base. The targeted countries include Libya, Somalia, Syria, Yemen and, of course, Iran.