How to position portfolios for potential future oil shocks | BetaShares

How to position portfolios for potential future oil shocks

BY David Bassanese | 25 September 2019
oil market

Reading time: 3 minutes

The surge in oil prices following the recent attack on Saudi Arabian oil facilities has once again highlighted the ongoing geopolitical supply risks facing this key global energy sector.  Going forward, this may well mean a risk premium could be added to oil prices even if the Saudis manage to restore production levels reasonably promptly. Either way, there remains the ever-present risk of further oil price shocks given ongoing Middle East tensions, which in turn could give rise to global inflation risks. This note considers some ways to position portfolios for such risks using exchange traded products.

The Saudi Drone Attack

A surprise drone attack on two major Saudi Arabian oil facilities on September 14 reportedly cut daily oil production by 5.7m barrels, or around one half of Saudi Arabia’s current output levels. That was equal to around 5.5% of global daily oil production.

The shocking event caused global oil prices to surge that day from $US60 to $US69 per barrel, or 15%.  Following reassurance by Saudi Arabia that it could restore lost production within weeks, oil prices have since eased back to $US64.50, or 7.5% above pre-attack levels.

The Oil Market’s Supply Vulnerability

Even if Saudi Arabia manages to quickly restore lost production, the underlying global tensions that brought about the attacks remain unresolved.  Indeed, US sanctions on Iranian oil exports – due to their nuclear enrichment dispute – are both limiting this source of global production and also raising tensions within the region.

More broadly, the fact remains that a good deal of global oil production is sourced from some of the world’s most unstable countries, such as OPEC members Iran, Iraq, Venezuela, Nigeria and Libya.  Supply disruptions in countries such as these have happened in the past and remain a risk.  The Middle East’s Strait of Hormuz also remains a critical transit way for around one-fifth of the global oil trade.


On the demand side, should the US and China settle their trade dispute, global economic growth and oil demand could well recover heading into 2020, which in turn could help to push oil prices higher.

How to position for oil price shocks

One of the most direct ways to position for a rising oil price is through the BetaShares Crude Oil Index ETF – Currency Hedged (synthetic) (ASX: OOO), which provides exposure to the $US crude oil futures price. The OOO ETF aims to broadly follow the general trend in oil prices, depending on what price expectations are already priced into the futures market.*

Energy stocks represent another way to gain exposure to this theme, through the BetaShares Global Energy Companies ETF – Currency Hedged (ASX: FUEL), which provides exposure to the largest global energy companies outside of Australia.  In general, rising oil prices should help to boost the revenues of many of these companies, which in turn should be supportive of share prices.

To the extent higher oil prices give rise to inflation concerns, this could also benefit a gold exposure, such as through the BetaShares Gold Bullion ETF – Currency Hedged (ASX: QAU), which is backed by gold bullion bars and so provides exposure to the $US spot gold price.

* Note: An investment in a Fund that aims to track commodity futures is not the same as investing in the “spot” price of the commodity. Therefore, the performance of the Fund may differ, even materially, from the performance of the underlying commodity itself. See the PDS for more information on risks and other product features.

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