U.S.-Iran Tensions Boiling: Should You Scoop Up This ETF?

Oil prices rose on June 21 after reports surfaced that U.S. President Donald Trump had cancelled a strike on Iran. Tensions between the U.S. and Iran have been rising steadily.

The Trump administration has cast blame on Iran for two attacks on oil tankers in the Persian Gulf. Several of Trump’s top advisors, including Secretary of State Mike Pompeo and National Security Advisor John Bolton, have staked a hawkish position.

The spot price of oil had just entered a bear market in early June, but it appears that renewed Middle East tensions may pluck prices out of a rut. The iShares S&P/TSX Capped Energy Index ETF (TSX:XEG) was down 0.55% in mid-afternoon trading on June 21.

The ETF has climbed 4.2% in 2019 so far. This ETF seeks exposure to the Canadian energy sector.

Canadian energy equities have stumbled in May and June due to oil and gas price volatility. Top holdings in this ETF like Suncor (TSX:SU), Encana (TSX:ECA), and Imperial Oil (TSX:IMO) all lost momentum in the late spring.

However, these conditions may create opportunities for savvy investors in the summer. Trade tensions between China and the U.S. will keep investors anxious about falling demand, so a move on the trade book will likely be the biggest mover if a détente is forthcoming.

I like this ETF at its price point as we kick off the summer.