Cargo ships in the Strait of Hormuz seen from northern Ras Al Khaimah, near the border with Oman’s Musandam Governorate. Reuters-Yonhap News
Returns on oil-related exchange-traded notes (ETNs) have surged as international crude prices spiked on renewed Middle East tensions. As oil prices climbed, stocks considered refining-related theme plays are also rising. Global investment bank Goldman Sachs recently forecast that Brent crude could exceed $120 per barrel in the fourth quarter if Middle East conflict escalates.
According to the Korea Exchange on the 26th, the closing price of the “Meritz Leverage WTI Crude Oil Futures ETN(H)” stood at 51,490 won on the 24th, up 69% from 30,465 won at the end of last month. The ETN tracks twice the daily return of West Texas Intermediate (WTI) crude futures listed on the New York Mercantile Exchange (NYMEX). It is structured to generate double the return when WTI futures prices rise. Other products also climbed steeply, including the Shinhan Bloomberg Leverage WTI Crude Oil Futures ETN B (up 61.1%), the Samsung Leverage WTI Crude Oil Futures ETN, the Korea Investment Leverage WTI Crude Oil Futures ETN B (60.8%), and the KB S&P Leverage WTI Crude Oil Futures ETN B (60.8%).
Seven of the 10 ETNs with the highest returns this month were products betting on rising international oil prices. While the KOSPI fell about 21% this month, ETNs that profit from rising oil prices showed the opposite performance. The gains reflect a sharp rise in international crude prices as military tensions between the United States and Iran escalated again. On the 23rd local time, the closing price of September-delivery WTI futures stood at $92.19 per barrel, up 33% from the end of last month, while Brent crude also surged 38% over the same period.
As oil prices rose, stocks considered refining-related theme plays have also shown sharp gains. Korea Petroleum’s shares rose 10% this month, while S-Oil (42%) and Heung-Kuk Oil (49%) posted gains exceeding 40%. As the steep rally continued, investor enthusiasm for leveraged buying has also intensified. Korea Petroleum’s credit balance rose 17% this month, and Heung-Kuk Oil’s credit balance also increased 21%.
Concerns over crude supply disruptions are growing due to heightened tensions in the Middle East region. The United States and Iran entered a ceasefire in April after war broke out in February and signed a memorandum of understanding (MOU) in June, but the ceasefire has effectively collapsed as Iran subsequently launched a series of attacks on ships in the Strait of Hormuz and the United States resumed airstrikes against Iran. Recently, the pro-Iranian Yemeni Houthi rebels declared a blockade of the Bab-el-Mandeb Strait at the entrance to the Red Sea. Goldman Sachs forecast that if disruptions in the Bab-el-Mandeb Strait persist, Brent crude prices could exceed $120 per barrel in the fourth quarter and average $100 next year.
