Oil prices are rising once more as investors absorb the Trump administration’s new sanctions on Russia’s two biggest oil producers, Lukoil and Rosneft, an action that has added new geopolitics to an already volatile market.
The United States Oil Fund LP (NYSE:USO) increased 3.4% on Wednesday and a further 4% on Thursday morning, and the United States Brent Oil Fund LP (NYSE:BNO) jumped 3.3% Wednesday and an additional 3% Thursday morning, continuing the momentum that started earlier this week.
The sanctions released Oct. 22 are meant to put pressure on Moscow for its “lack of serious commitment” to bringing an end to the war in Ukraine. Treasury Secretary Scott Bessent indicated that the U.S. “is prepared to take further action if necessary” and that Washington’s position may grow stronger.
The short-term consequence has been a short-covering rally in oil ETFs as traders expect possible supply disruptions. Even with the price spike, though, market trends suggest the rally won’t last long. According to ETF Database, BNO has experienced net outflows of about $20 million year-to-date and $7 million in the last month, while flow data for USO remain weak, with total withdrawals totaling $677 million year-to-date.
This suggests that in the last few months, President Donald Trump‘s sanctions have done little to convince investors to allocate funds to them. The subdued investor reaction suggests the recent bounce might also be more of a geopolitical wobble than a structural shift.
Both USO and BNO are in the red for 2025, down 5% and 3%, respectively, burdened by OPEC+ production increases driven by Saudi Arabia and Russia. In the meantime, Trump’s tariff threats and escalating trade tensions have obscured world growth prospects, further weakening oil demand.
China’s slowing economy provides another brake. The second-largest oil user in the world is still fighting a real estate downturn and shifting towards cleaner fuels, cutting crude imports and capping prices.
Even large Wall Street institutions are lowering expectations. Goldman Sachs expects Brent crude to dip to $52 a barrel by Q4 2026, attributing it to continued oversupply and slow demand rebalancing.
The Road Ahead For Oil ETFs
Looking ahead, the future for oil ETFs looks cautiously weighted between geopolitical tailwinds and supply-side headwinds. According to analysts, if sanctions against Russia significantly choke off exports, oil prices may find near-term support — specifically for Brent-linked funds like BNO, which are more responsive to international pricing.
But any prolonged upside could be capped by OPEC+’s production growth and China’s patchy demand rebound. Without a clear demand driver, it’s hard to see oil sustaining these gains.
Nevertheless, fund flow patterns indicate investors aren’t betting on this rally sticking. Until more robust demand signals from key economies are confirmed, oil ETFs will likely be trading in fits and starts, with headline risk, rather than fundamentals, driving the action.
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Image created using artificial intelligence via Midjourney.