Oil prices surged sharply as conflict between the United States and Israel against Iran intensified, pushing the energy sector higher (03/03). The rally also drove the Energy Select Sector SPDR Fund (XLE) to its highest level in nearly 18 years.

Brent crude rose 7% to US$77.9 per barrel on Monday, while West Texas Intermediate (WTI) climbed 6.3% to US$71.23 per barrel. These levels marked the highest since June last year and January 2025, respectively.

Strait of Hormuz Concerns Drive Supply Fears

Rising tensions in the Middle East increased concerns over possible disruptions in the Strait of Hormuz, a strategic route that handles about one-fifth of global oil shipments.

Several shipping companies began diverting their vessels to anticipate security risks in the region.

The price jump followed a series of attacks launched by the United States and Israel on Iran, which were later met with retaliatory strikes by Tehran on regional targets.

The situation escalated after Saudi Aramco temporarily halted operations at the Ras Tanura refinery, the largest processing facility in Saudi Arabia, to assess damage following a drone attack.

OPEC+ Agrees to Modest Output Increase

On Sunday, the OPEC+ group agreed to raise production by 206,000 barrels per day starting in April, ending a three-month pause in output increases.

However, the agreed increase was lower than earlier plans, which had considered an addition of between 411,000 and 548,000 barrels per day.

With the relatively limited production increase and ongoing geopolitical uncertainty, the energy market remains cautious, keeping oil prices under upward pressure.

XLE ETF Reaches 18-Year Record High

The rise in oil prices supported gains in the Energy Select Sector SPDR Fund, known as XLE.

The exchange-traded fund tracks the performance of major energy companies in the S&P 500, including Exxon Mobil and Chevron, offering broad exposure to the energy sector.

During Monday evening trading (02/03), XLE reached an all-time high of US$56.99 per unit, marking its strongest level in nearly 18 years.

PHOTO: UNSPLASH

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