After nearly doubling in 2026 on war risk, crude oil prices have shed almost 20% from their peak as traders weigh supply disruptions against the prospect of a US-Iran peace deal.
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WTI Crude Retreats to $96 After a 96% YTD Gain on Hormuz Tensions
West Texas Intermediate crude has pulled back to near $96 a barrel, following a volatile year that saw prices surge from $57 to a peak of $115 on escalating conflict in the Strait of Hormuz. The nearly 100% gain was erased in part by reports of a potential US-Iran peace deal, highlighting the market's sensitivity to geopolitical headlines.
"Even if the conflict ends soon and the Strait is reopened, we believe high oil and overseas liquified natural gas prices will persist for at least a few months," Morningstar DBRS analysts said in a May 22 report, raising their full-year WTI forecast to $75 a barrel.
The conflict's impact was immediate, choking off a waterway that handles 20 percent of global crude and forcing a heavy reliance on inventories. Global oil stocks saw exceptionally large drawdowns, falling by roughly 85 million barrels in March and a further 117 million in April, according to the International Energy Agency. The market structure flipped into a steep backwardation, rewarding holders of front-month futures.
The key question for the second half of 2026 is whether the geopolitical risk premium now being priced out of the market will return. A fragile peace could see WTI trade closer to Morningstar's $75 forecast, but any renewed hostilities could quickly send prices back above $100, directly impacting global inflation and transportation costs ahead of the winter season.
Three ETFs, Three Views on the Oil Trade
For investors, the pure-play move has been through futures-based exchange-traded funds. The United States Oil Fund (USO), which tracks front-month WTI, has gained about 104% year-to-date. The United States Brent Oil Fund (BNO), which follows the international benchmark more sensitive to Hormuz disruptions, is up 94%. A third, the Invesco DB Oil Fund (DBO), which uses a roll-optimization strategy to mitigate costs, has lagged with an 84% gain, reflecting its more conservative contract selection.
The performance gap highlights a core dilemma for traders. USO offers the most direct exposure to WTI and the highest liquidity. BNO is the sharper tool for betting on Middle East supply shocks, as Brent crude carries the direct waterborne risk premium. DBO, meanwhile, is structured to outperform over a longer cycle, especially if the market flips from backwardation back to contango, a state where rolling futures contracts creates a drag on returns.
From War Premium to Peace Dividend?
The market's sharp reversal on May 21, when reports of a Pakistan-brokered peace draft briefly surfaced, shows how quickly the trade can unwind. WTI crude slid almost 3% to $96.23 in 30 minutes on the news, which included terms for a ceasefire and freedom of navigation in the Gulf. While the rally has been profitable for oil bulls, the episode serves as a warning that futures ETFs are tactical tools. Holding them through a genuine normalization of geopolitical risk could mean giving back a substantial portion of 2026's gains.
This article is for informational purposes only and does not constitute investment advice.
[1] US Oil Has Nearly Doubled This Year and After Tracking Every Oil ETF These 3 Show Exactly Where the Energy Trade Goes Next[2] Morningstar DBRS: High Oil Prices to Persist Into Summer, but Ample US Gas...[3] Current price of oil as of May 22, 2026[4] US-Iran Peace Deal Rumors Send Stocks Up $500 Billion as Oil Price Crashes
