Avoid crude ETFs amid refining crunch, says trader

Former Petronas trader Baron Lamarre warns that a temporary crude surplus makes exchange-traded funds like United States Oil Fund, LP (USO) and United States Brent Oil Fund, LP (BNO) poor investment choices despite historic refining margins and 10% of global capacity sitting offline. Lamarre, co-founder of the International Digital Exchange (INDEX), suggests targeting individual refiners to safely capture the product shortage rather than relying on broad commodity funds.

Disconnect Between Crude and Crack Spreads

The U.S. 3-2-1 crack spread recently hit a record $64 per barrel with approximately 8 million barrels per day offline. However, raw crude prices have failed to match this downstream boom. A crack spread represents the gross profit margin an oil refinery earns by breaking down crude oil into refined petroleum products like gasoline and diesel.

Lamarre attributes this divergence to a fundamental market structure. "This looks more like a temporary crude surplus running into a genuinely separate product shortage, rather than tight refining capacity dragging crude prices up with it," he said. Consequently, he cautions against using broad commodity funds to trade the refining crunch, specifically advising against leaning on the refining story as a support factor for USO or BNO.

The Case for Individual Refiners

Louis Navellier, founder of Navellier & Associates, explicitly advises traders to prefer individual stocks like Phillips 66 (PSX) and HF Sinclair Corp. (DINO). Lamarre echoes this sentiment, noting that record margins provide a much cleaner tailwind for refiners compared to crude trackers.

Furthermore, Lamarre and Bitunix analyst Dean Chen warn that futures-based ETFs face contango risks. These risks can "quietly eat into returns" through "negative roll costs." Lamarre emphasizes that USO and BNO are "tactical vehicles right now, not buy-and-forget."

Crude Price Scenarios

Lamarre outlines four potential scenarios for crude prices, emphasizing a wide-band outlook over tight forecasts:

Scenario	Brent Price	WTI Price
Baseline Range	$80–$100	$76–$95
Near-Term Escalation	Test $100	Mid-$90s
Full Chokepoint Closure	$110–$120	N/A
De-escalation	$75–$90	$70–$85

Navellier maintains that any war-related spikes will be "temporary," projecting WTI to peak "up to $82 per barrel" through Labor Day.

Market Performance

At the last check, Crude Oil WTI Futures were down 0.61% at $81.28, and Brent Oil Futures were 0.05% lower at $88.06. USO closed 3.91% higher on Friday and was down 0.25% in the premarket on Monday. BNO closed 4.10% higher at $48.70 and was 0.11% higher in the premarket on Monday.

Oil prices retreated from recent highs as Brent crude traded 0.57% lower at $82.70 per barrel and WTI crude futures fell 0.73% to $81.18 per barrel on Monday. The decline follows confirmation that U.S. and Iranian mediators have put forth new proposals aimed at easing ongoing tensions in the region. Iranian Foreign Ministry Spokesman Esmaeil Baghaei acknowledged the efforts of mediators late Sunday, stating that the principle of the matter is clear: mediators are working to prevent tension from escalating.

Diplomatic Efforts and Strategic Messaging

Baghaei emphasized that diplomacy and defense are not mutually exclusive, asserting that both can be employed simultaneously to safeguard Iran's national interests. He refuted allegations of ambiguity in the Memorandum of Understanding (MoU) between Iran and the U.S., insisting the agreement is clear and leaves no room for violations. On the U.S. side, Secretary of State Marco Rubio expressed that the U.S. remains receptive to diplomatic discussions with Iran. Rubio criticized Iran for attacks on ships and blocking the Strait of Hormuz but noted the June MoU is designed to enhance the ceasefire and restore traffic through the waterway. He warned that a breakdown in diplomacy would be detrimental to Iran, citing its economy as being "in shambles."

Regional Coordination

Amid the exchanges, Iranian Interior Minister Eskandar Momeni arrived in Pakistan on Monday for high-level talks. Momeni is set to meet with Pakistani Interior Minister Mohsin Naqvi and the country's top leadership to deliver a message from President Masoud Pezeshkian. The visit highlights Tehran's close coordination with Islamabad regarding the evolving regional situation and the ongoing conflict with the U.S.