A tug-of-war between easing sanctions on Russia and attacks on oil facilities

Friday (2026-10-16) U.S. stocks fell, SPY down 1.11%, QQQ down 2.50%, with tech leading the declines; rate‑hike concerns continue to weigh on high‑valuation stocks. The new developments from the weekend into Monday came from Russia: U.S. President Trump deferred most sanctions against Russia, while Ukraine simultaneously launched a large‑scale airstrike on Russian oil facilities.

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Sanctions just eased, and Russian oil terminals caught fire

Start with the sanctions side. On September 18, Trump signed a law to punish Russia; the Senate passed it by 86 votes to 11. By October 16, the law’s main new penalties were about to take effect, and Trump issued an executive order invoking the so‑called "Section 115" to exempt most of them. His explanation was that this was done to keep Moscow at the negotiating table. To use an analogy: Congress had just installed the lock, and the president immediately took back the key.

The significance is that the sanctions were originally meant to limit Russia’s energy revenue. If they are relaxed, the market will expect Russian oil to be easier to sell and concerns about tight supply will ease. In Asian trading on Monday morning, oil prices did fall, while equity markets were mixed and tech stocks were more volatile. U.S. Secretary of State Rubio, visiting India, also said a U.S.-India trade deal was very close and explained the reasons for U.S. loosening of restrictions on Russian oil.

But on Sunday, the battlefield produced a countervailing force. Ukraine launched over 1,000 drones, one of the largest air raids in this war. An oil export terminal and an oil depot in Saint Petersburg caught fire. At the same time, the dispute between Trump and Ukrainian President Zelensky remains ongoing. This means that on paper Russia can sell more oil, but in reality its export facilities are being bombed. Last week Ukraine resumed attacks on Russian refineries after a short ceasefire; a tanker off the Romanian coast was hit by a drone and caught fire, with seven crew members missing. Romanian warplanes also shot down two drones over the Black Sea.

There is an additional diplomatic variable. According to reports, Russian President Putin proposed a trilateral summit next month with Trump and Chinese President Xi to discuss a Ukraine peace agreement. For now this is only a proposal and whether it will take place is undecided. If talks do move forward, supply risk would fall, so the market neither ignores the possibility nor takes it for granted.

On the Middle East front, the supply gap remains. Saudi Arabia intercepted missiles from Houthi forces, and the U.S. and U.K. issued travel warnings after attacks on Saudi airports. Iran said that two tankers struck mines in the Strait of Hormuz on Sunday. Trump predicted a quick end to a war with Iran, but passage through the strait remains near-stopped. Even if Russia eases exports, it cannot fill that gap.

Putting these items together: oil prices remain elevated, 10‑year Treasury yields are at 5.09% (as of October 16), and Friday’s tech selloff carried with it inflation and rate worries. The new element today is Russia. The issue has shifted from a pure supply risk to a tug‑of‑war between "policy easing" and "facilities being bombed." On Friday BNO rose 3.59% in a single day and XLE rose 2.52%, indicating the market then leaned toward fearing supply shortages. Oil’s pullback on Monday morning shows the sanctions‑easing news beginning to be digested.

Other things worth knowing

The two items below are unrelated to the main storyline.

First, in the U.K. Accounting firm EY’s data show that the number of profit warnings issued by U.K. listed companies in the most recent quarter hit a nearly two‑year high, with 65 large firms issuing warnings over three months. The reasons are rising costs and weak consumer confidence. On the other hand, some reports say the U.K. economy is outperforming expectations thanks to AI, which gives the Chancellor a boost ahead of the budget. The simultaneous appearance of weakening corporate profits and an economy beating expectations indicates large differences across industries.

Second, in Canada. Oil‑rich Alberta voted on Monday on whether to start a process that could lead toward independence. Canadian Prime Minister Karni is working to preserve national unity, set against Trump’s trade war and his remarks about turning Canada into the "51st state." Before the vote result is known, the market impact of this event is indeterminate.

Tracking the oil shock

This supply shock is still unfolding. Brent spot is trading at a premium to nearby futures; the gap’s 5‑day average is $23.0/barrel, about 17.3 one month ago, indicating spot is tighter. Hormuz transits averaged 0.6 tankers per day over the past 7 days, about 1.3% of pre‑war normal (as of October 11). The diesel crack spread has narrowed compared with a month ago — crude has risen faster than diesel.

Today’s logic: tech plunges, so why only a small drop in the broad market?

On Friday QQQ fell 2.50% while SPY fell only 1.11%, more than a twofold difference. A broad index is like a large platter; tech is only one dish. There are other dishes on the platter, and many of those were up that day. On the same day, energy XLE rose 2.52% and VDE rose 2.51%. Consumer staples XLP rose 5.02% over the past 5 trading days. Those gains offset part of the tech declines, compressing SPY’s drop. QQQ is tech‑heavy and lacks that cushion. Semiconductor ETF SOXX fell 4.14% on Friday and 11.80% over the past week; QQQ fell 5.52% over the past 5 days while SPY fell only 1.97% — that’s how the gap opened. Relating back to today’s news, the energy stock gains came from Russia and Middle East oil supply risks; within the same index, tech pressure and energy gains partially offset each other.

How the ETF Radar model sees it

Start with BNO, which tracks Brent crude. BNO actually rose 5.00% over the past 5 trading days, with a single‑day gain of 3.59% on Friday. ETF Radar’s model uses two main inputs. One is the spread between the near‑month WTI contract and the contract 12 months out, which annualizes to about 19.2%, indicating that oil for immediate delivery is much more expensive than oil for delivery a year from now — a sign of current tightness. The other is the aforementioned Brent spot premium. Uncertainty is also obvious: if lifting sanctions on Russia brings more supply, near‑term tightness could ease, and oil already retreated on Monday morning. Trump’s prediction of a short Iran war is another potential variable. Looking forward, ETF Radar’s model is mildly positive on BNO’s direction for the next 1 to 3 months, consistent with recent moves.

Next, IEF, the intermediate‑term U.S. Treasury ETF. IEF actually rose 1.14% over the past 5 trading days because the 10‑year Treasury yield fell 13 bps over the same period to 5.09% (as of October 16); when yields fall, bond prices rise. But the model’s view is different. Speculative net positions in 10‑year Treasury futures are negative; the latest reporting period (October 13) shows -2,205,937 contracts, widening from -1,926,947 over the prior three reports and sitting at the low end of its own historical range. Plainly put, bearish positions on Treasuries heavily outnumber bullish ones and have been accumulating. On the fund flows side, IEF experienced net redemptions amounting to 0.50% of assets since October 12. Option market prices for downside protection are in the 95th historical percentile. Counterevidence is that the prediction market assigns a 0.96 probability that the ECB left rates unchanged at its most recent meeting, which undermines the channel by which European tightening would push global rates higher. For the outlook, ETF Radar’s model is mildly negative on IEF’s direction over the next 1 to 3 months. It has risen recently, but the model looks at the upcoming 1 to 3 months, and the short‑term rebound hasn’t changed that view. Higher oil prices lifting inflation is the backdrop; the model’s main inputs are positions and flows.

Last, SOXX fell 11.80% over the past 5 trading days. The model yesterday could not issue a one‑sided view; today it turns mildly negative. Three pieces of supporting evidence: net outflows over the past 5 days equal 2.77% of assets, indicating money is leaving; the option market’s cost of downside protection rose to the 95th historical percentile; and U.S. Treasury yields remain relatively high, meaning future profits must be discounted at a higher rate. Counterevidence exists too: spot prices for storage chips DRAM have risen significantly, indicating tight memory demand, which is a sectoral positive. Pricewise, SOXX has fallen 12.69% cumulatively over the past 9 trading days, meaning some concerns are already priced in. This analysis is not directly related to the main news today; it is the model’s independent medium‑term view. ETF Radar’s model is mildly negative on SOXX’s direction over the next 1 to 3 months, aligned with the recent decline, but the fall has been large and future movement will depend on whether the DRAM strength can offset capital flight.

Summary

The new development today is that while Trump eased sanctions on Russia, Ukraine attacked Russian oil terminals, leaving oil supply subject to a tug‑of‑war between policy easing and facilities being bombed, and the Strait of Hormuz remains nearly closed. A reminder: the above are system quantitative model directional forecasts for general markets and do not constitute personal investment advice; consult a licensed investment advisor before investing.