Prediction markets have turned increasingly bullish on U.S. crude, with traders now assigning a 51% probability that oil prices will climb above $90 per barrel before the end of the month. This shift comes as crude has staged a sharp 25% rally this month, reigniting investor interest in funds tied to oil producers, refiners, and energy services companies. The move reflects growing expectations that tightening supply dynamics and firm demand could keep energy prices elevated.

According to The Kobeissi Letter, the probability of U.S. oil topping $90 this month has risen by 19 percentage points. If crude reaches that threshold, it would represent a roughly 34% gain since July 2, with the potential to push average U.S. gasoline prices toward $4.20 per gallon. Oil is currently trading around $85.

Energy ETFs Could Be Early Winners

Historically, rising crude prices have boosted the earnings outlook for oil producers and exploration companies, making energy-focused ETFs a natural way for investors to express a bullish view on the commodity without buying oil futures directly.

The Energy Select Sector SPDR Fund (NYSE: XLE), the largest U.S. energy ETF, typically benefits when higher crude prices translate into stronger cash flows and shareholder returns. Investors looking for greater sensitivity to oil prices often turn to the SPDR S&P Oil & Gas Exploration & Production ETF (NYSE: XOP), whose portfolio is tilted toward exploration and production firms that generally experience a larger earnings impact from rising oil prices than integrated energy giants. Another fund to watch is the VanEck Oil Services ETF (NYSE: OIH), which tracks companies providing drilling equipment and oilfield services.

Leveraged Energy ETFs May See Increased Trading Activity

Should oil continue its upward momentum, leveraged ETFs could attract short-term traders seeking amplified exposure to the sector. Among the most actively traded products are the Direxion Daily Energy Bull 2X Shares (NYSE: ERX), which aims to deliver twice the daily performance of the S&P Energy Select Sector Index, and the Direxion Daily Energy Bear 2X Shares (NYSE: ERY) for investors betting on a pullback. Because these funds reset their leverage daily, they are generally intended for tactical trading rather than long-term investing.

Commodity ETFs Could Also Gain Attention

Beyond equity-based funds, investors expecting oil itself to move higher may also look at commodity ETFs such as the United States Oil Fund (NYSE: USO), which tracks near-term WTI crude oil futures, and the Invesco DB Oil Fund (NYSE: DBO), which uses an optimized futures strategy designed to reduce the impact of futures roll costs. If crude does push above $90, energy-sector ETFs could once again outperform the broader market, particularly after lagging many of this year’s AI- and technology-driven gains. Conversely, any easing in geopolitical tensions, stronger-than-expected production, or weaker global demand could quickly reverse the recent surge in oil prices, underscoring the sector’s inherent volatility.

American refiners are minting money as the margin they earn turning crude into fuel has surged to a record high, driven by hostilities in the Strait of Hormuz and a structural decline in U.S. refining capacity. Marathon Petroleum Corp., Valero Energy Corp., and Phillips 66 rank among the best-performing names in the S&P 500 this month, with gains of approximately 24%, 23%, and 20% respectively. The VanEck Oil Refiners ETF (CRAK) has climbed 18.3% in July, putting it on track for its best month since November 2020.

Record Refining Margins Drive Gains

The engine behind the refiner rally is the 3-2-1 crack spread, which measures the profit from turning three barrels of crude into two barrels of gasoline and one of diesel. Matthew Sigel, head of digital assets research at VanEck, stated that the spread "just hit an all-time high of ~$70/bbl, eclipsing the 2022 energy crisis." This surge is attributed to the blockade of the Strait of Hormuz, which has tightened global fuel supplies faster than crude, allowing refiners to capitalize on the widening gap.

Structural Capacity Constraints

Beyond geopolitical risks, a deeper reason for the squeeze is the permanent retirement of U.S. refining capacity. Sigel noted that the country has retired between 1.2 and 1.3 million barrels a day of capacity since 2019, equivalent to closing seven major plants. This reduction leaves far less room to absorb disruptions, amplifying the impact on margins.

Impact on Consumers and Analyst Views

The same forces lifting refiner profits are reaching the pump. AAA reported the national average for regular gasoline at $4.00 a gallon, up from $3.87 a week earlier, while diesel sits at $5.11. Despite the rally, Wall Street consensus price targets suggest the stocks are overvalued. Analyst consensus for Marathon Petroleum sits at $255 against a recent price of $315, while Valero Energy's consensus is $239 versus $311. Raymond James recently lifted targets to Street-highs of $335 for Marathon and $340 for Valero.