Market scored on Iran war oil price boom. Staying long may not be wise

The past week’s earnings from the energy sector demonstrated just how much the U.S.-Iran war has contributed to the short-term performance of major players in the oil market — and to the portfolio gains of investors who targeted stock opportunities in the sector. The sums are massive, but sitting on those gains for too long could be a mistake, according to investing experts.

ExxonMobil and Chevron reported quarterly profits on Friday that surged due to the war’s impact on oil prices, with Exxon’s profits doubling year-over-year to $14.5 billion and Chevron’s net income increasing close to 400%.

“We’re kind of firing on all cylinders, which is good, because the world needs it,” CEO Mike Wirth told CNBC’s Becky Quick on Friday.

From April through June, U.S. crude oil futures averaged over $92, a quarterly increase of 27%.

The action in refiners has been even stronger. Valero Energy‘s earnings were up over 400% for the quarter compared to last year in world that Valero estimates is still five million barrels short per day of global refining capacity and over 100 million barrels short of oil inventories. Chevron’s refining segment saw profits jump 500% amid the rise in gasoline and diesel prices.

An energy market driven by geopolitics — not only the war in the Middle East but also between Russian and Ukraine — has attracted money into oil and oil industry-related ETFs, and it has created big winners along the way. But oil prices have been turbulent this year, particularly since the on-again, off-again war in Iran started. Since early March, the price of a barrel of oil peaked at nearly $120, dipped as low as $72, and seesawed — sometimes daily — within that range.

This weekend, President Trump offered his latest comments that an end to the war may be in sight, referring to the “perimeters of a deal” and potential reopening of the Strait of Hormuz. As of Friday, U.S. crude was trading under $85 per barrel, with Brent crude around $90. Prices fell more than 5% over the past week on bets that the situation in the Middle East would improve.

That leaves a big decision for investors who have profited from the recent runup in the energy sector, investing experts say. The recent gains can largely be attributed to trades that are closer to short-term speculation than long-term fundamental analysis, and there may be better opportunities for buy-and-hold investors elsewhere in the energy sector. 

“If you’re making a play on oil because of geopolitics in a six-month period, you are not investing; you are gambling,” said ETF.com’s Dave Nadig. “[The trades were] literally intraday reactions to things blowing up in the Persian Gulf.”

Traders and investors with extensive knowledge of energy…