To The Moon

Oil prices saw significant volatility last night. During the US trading session on March 23, Brent crude fell sharply from around $113 to $96, marking a drop of more than 13% in a single day — one of the most dramatic moves in recent years. Prices then rebounded quickly and are now fluctuating around $102, with the market still facing high uncertainty.

From the perspective of ETF performance, the sharp swings in oil prices led to clear divergence across related products. $United States Oil Fund LP(USO)$ , which tracks oil prices directly, fell 8.95% for the day, while $United States Brent Oil Fund LP(BNO)$ declined 9.52%. The 2x leveraged long oil ETF $ProShares Ultra Bloomberg Crude Oil(UCO)$ dropped as much as 11.69%, showing the largest decline. Among energy equities, performance was mixed: $Energy Select Sector SPDR Fund(XLE)$ rose 0.54% and $Vanguard Energy ETF(VDE)$ gained 0.99%, while the more small-cap tilted $Spdr S&P Oil & Gas Exploration & Production Etf(XOP)$ fell 1.27%, indicating clear divergence in capital flows during heightened volatility.

On the short side, inverse products delivered strong gains. The 2x inverse oil ETF $ProShares UltraShort Bloomberg Crude Oil(SCO)$ rose 10.47% in a single day, making it the best-performing energy-related ETF. This highlights the amplified effect of inverse leveraged products during rapid declines in oil prices.

The starting point of this selloff can be traced to the US morning session on March 23. Before the key announcement, the market had already shown unusual activity, with large-scale concentrated selling and a sharp increase in trading volume, indicating that investors had begun pricing in expectations of potential de-escalation.

The actual trigger for the sharp drop came shortly afterward during the same session, when Donald Trump announced that planned strikes on Iran’s energy infrastructure would be postponed by five days, and stated that the US was engaged in “productive talks” with Iran. This marked a clear reversal from the previously hawkish stance, and quickly cooled market sentiment.

Just the night before, on March 22 during the US evening session, tensions were still escalating. Trump had issued a 48-hour ultimatum for Iran to reopen the Strait of Hormuz, warning that failure to comply would result in strikes on its energy and power systems. Iran responded by stating it would maintain the blockade and potentially target energy infrastructure across the Middle East.

As a result, between the US evening of March 22 and the Asian morning of March 23, the market rapidly priced in supply disruption risks. The Strait of Hormuz accounts for roughly 20% of global oil transportation, and a prolonged closure would disrupt millions of barrels of supply, pushing oil prices above $110.

However, with the emergence of signals of delayed strikes and potential negotiations during the US morning of March 23, market expectations shifted from escalation to short-term easing. The geopolitical risk premium was rapidly unwound, triggering a sharp, cascade-style decline in oil prices.

That said, the conflict itself has not eased. During the Middle East morning of March 24, Iran made it clear that it would not negotiate with Trump and would not restore the Strait of Hormuz to its previous state, indicating that supply risks remain firmly in place.

This explains why oil prices rebounded quickly after the sharp drop. The current market is oscillating between expectations of escalation and de-escalation. As long as there is progress in negotiations, oil prices may decline; but if tensions rise again, there remains room for prices to move higher.

Related ETF Recommendations:

Among traditional energy equity ETFs, $Energy Select Sector SPDR Fund(XLE)$ has total assets of approximately $41.3 billion and an expense ratio of 0.03%. It mainly holds large oil companies such as ExxonMobil and Chevron, making it a relatively stable option. $Vanguard Energy ETF(VDE)$ has assets of about $10.5 billion with an expense ratio of 0.08%, offering broader exposure across upstream, oil services, and integrated energy companies. $Spdr S&P Oil & Gas Exploration & Production Etf(XOP)$ , with assets of around $3.4 billion and a 0.35% expense ratio, uses an equal-weight approach and tilts toward smaller-cap exploration and production firms, providing higher elasticity. $VanEck Oil Services ETF(OIH)$ , with assets of about $2.4 billion and a 0.35% expense ratio, focuses on oilfield services and is more sensitive to capital expenditure cycles.

For oil futures ETFs, $United States Oil Fund LP(USO)$ manages around $2.0 billion with an expense ratio of 0.45% and tracks WTI crude futures, making it one of the most commonly used tools for direct oil price exposure. $United States Brent Oil Fund LP(BNO)$ , with assets of approximately $710 million and a 0.75% expense ratio, tracks Brent crude futures and is more sensitive to Middle East and European market dynamics.

On the leveraged long side, $ProShares Ultra Bloomberg Crude Oil(UCO)$ has assets of about $590 million and an expense ratio of 0.95%, providing 2x daily exposure to WTI crude futures. $Direxion Daily S&P Oil & Gas Exp. & Prod. Bull 2X Shares(GUSH)$ , with assets of approximately $420 million and a 0.75% expense ratio, delivers 2x exposure to oil and gas exploration and production equities, offering higher upside during bullish cycles.

On the short side, $ProShares UltraShort Bloomberg Crude Oil(SCO)$ has assets of around $890 million with an expense ratio of 0.95%. It provides 2x inverse exposure to WTI crude futures and is mainly used to bet on falling oil prices. It performed strongly during this recent decline, but is generally more suitable for short-term trading.