Oil prices are soaring as geopolitical tensions spill over into global energy markets, but there’s an even sweeter trade in energy volatility that investors are flocking to: the cost of moving oil.
The Breakwave Tanker Shipping ETF (BWET), a little-known exchange-traded fund tied to crude oil tanker freight rates, has soared more than 600% since the beginning of the year, as shipping rates have skyrocketed due to war and disruption to major maritime routes.
“We’re starting to get a lot of questions about this ETF, like, how is this doing? How is this performing?” Cynthia Murphy, director of research at VettaFi, told CNBC’s “ETF Edge” this week.
BWET is a $30 million portfolio launched in May 2023 in an ETF market with over $13 trillion in assets.
Murphy explained that the scale of this movement is forcing the market to rethink where energy’s real impact lies. Investors may be focusing not just on oil prices, which have been extremely volatile this year, but on the infrastructure the world relies on to move energy goods.
“This is really about shipping charges,” Murphy said. “Freight futures prices soar whenever there is a major disruption in shipping, but there is one ETF that captures that performance better than any other.”
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A wet year
Murphy said continued tensions in the Strait of Hormuz have proven the market retains its ability to send cargo futures higher and faster while repricing the risks of moving goods, not just oil, through the region. For example, the Baltic Exchange Dry Index is up more than 6% over the past week and 41% year-to-date.
But Paul Baiocchi, head of fund sales and strategy at SS&C Technologies, said, “The big oil movement is really moving.”
Oil prices have risen significantly this year, with the United States Oil Fund (USO) up nearly 90% as of Friday and the SPDR State Street Energy Select Sector SPDR ETF (XLE) up more than 23% as energy stocks posted big gains. But these movements seem modest compared to the surge in cargo futures, which began before the outbreak of war in the Middle East and has seen BWET rise more than 1,000% in the past year.
“Oil prices, of course, have risen dramatically, and this has been a big year for the energy sector in general, energy stocks, all parts of energy,” Murphy said. But she added, “BWET is really standing [out]. ”
At the same time, Baiocchi said the rise is tied to broader themes playing out across global markets: underinvestment in energy infrastructure and the increasing need to ensure more resilient supply chains.
”[We talked] Regarding this idea, he said that many of the world’s primary commodity markets were in trouble even before the Iran conflict, and that this conflict has exacerbated many of these challenges.
This includes not only oil transportation, but also the creation of a broader energy system. “Countries and businesses around the world will be scrambling for more stable energy sources,” he said.
Despite BWET getting a lot of attention, ETF experts warn that fares are inherently volatile and triggered by short-term shocks. But as geopolitical conflicts continue to reshape global trade, more investors are looking beyond commodity prices to the systems that determine how goods move into markets to generate investment returns.
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