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Oil Went From $108 to Under $100 and Back to $102 in One Week. Here's What Energy Investors Should Do With That

One week, three different oil prices

Here's how the week went for Brent crude, the global benchmark:

A round trip of almost $10 a barrel, and the week ended roughly flat. US crude, called WTI, settled at $91.11, down a little over 1%.

What set it off

Iran had offered to reopen the Strait of Hormuz and return to nuclear talks within seven days. In exchange, it wanted the US to lift its naval blockade of Iranian ports, ease sanctions on Iranian oil, and observe a ceasefire.

On Saturday, September 26, President Trump said no. "I'd like to make a deal, too," he said. "But that deal would not be acceptable."

When markets opened Monday, traders who had bet on a deal rushed to buy oil back. Brent jumped more than 3%.

The strait matters because about one-fifth of the world's oil used to pass through it. Shipping has dropped sharply since the conflict began in late February.

Why the spike didn't hold

A few things pulled prices back down:

• Some ships are getting through. Al Jazeera reported 132 transits in the week of September 21-27, up from 116 the week before.
• Emergency supplies. Reports of strategic reserve releases weighed on US crude in particular.
• A weaker economy needs less oil. The US added only 29,000 jobs in September.
• Iran says it's still waiting. Tehran said it expected a "definitive" US response, which kept the door open a crack.

What $100 oil does to everything else

Oil isn't just a number for traders. It's the main reason interest rates are rising around the world this year.

• Gasoline and diesel cost more, which raises the price of anything that's shipped.
• Eurozone inflation hit 3.8% in September, with energy up 18.8%.
• Central banks have responded with rate hikes: the Fed, the ECB and others.
• Higher rates push up mortgage costs and weigh on stocks.

If the strait reopens and oil falls, that whole chain could run in reverse. That's why every headline about Iran moves stocks, bonds and currencies, not just oil.

What should an investor do?

Don't trade the headlines. This week is the proof. Someone who bought on Monday's spike was down about 8% by Thursday. Someone who sold on Thursday missed Friday's bounce. The news moves faster than you can.

Know what you already own. Energy is about 3% to 4% of the S&P 500 and roughly a sixth of Canada's TSX. If you hold a Canadian index fund, you have plenty of oil exposure already.

Understand the two-way risk. Energy producers are earning record cash at these prices. But their share prices assume oil stays high. A peace deal would be great for the world and bad for oil stocks. We walked through that scenario in What Happens to Energy Stocks if Hormuz Reopens?

If you want more energy exposure, keep it simple. A sector ETF spreads your bet across dozens of producers, pipelines and refiners. Pipelines and other "midstream" companies get paid for moving oil and gas, so their income is steadier than drillers' when prices swing.

Think of energy as a hedge, not a bet. A modest energy position tends to do well when inflation surprises to the upside, which is when the rest of your portfolio often struggles. That's a reason to hold some. It isn't a reason to hold a lot.

What to watch

• Any US response to Iran's latest proposal
• Weekly tanker transit counts through the strait
• Mid-October inflation data in the US and Canada
• Third-quarter earnings from the big oil companies later this month

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