With energy markets facing heightened geopolitical risk, investors are increasingly looking for ways to capitalize on rising oil prices. While major oil producers could benefit from a sustained rally, energy-focused exchange-traded funds (ETFs) may offer a diversified and cost-effective way to gain exposure to one of the market’s hottest sectors.
This morning, oil was up by $1.76 at $89.92, and could gush to $150 if the Iranian war doesn’t end soon, as noted by Claudio Galimberti, chief economist at Rystad Energy, as quoted by CNBC. “At this point, unless we solve [the Middle East conflict], unless we start to see an increase in the flow, then we are going to see lower and lower inventories, which means higher and higher prices,” Galimberti added.
Not helping, Exxon Mobil just warned that oil inventories will hit “really, really low levels” in coming weeks with the conflict. “We’re approaching unheard of inventory levels,” said Exxon Senior Vice President Neil Chapman. “I mean really, really low levels. You can debate whether that’s going to hit, those really low levels, in two weeks or three weeks. Once you get to that point, then you’ll see price shoot up.”
And, according to Trump on social media, “They’ve taken too long to negotiate a deal that would have been great for them, now they will have to pay the price.”
A $150 Oil Scenario Is No Longer Unthinkable
But at this point, it could easily happen with war intensifying again, and with reserves dropping to historically low levels.
That being said, investors can always jump into oil stocks, such as Exxon Mobil (NYSE: XOM), Chevron (NYSE: CVX), and Occidental Petroleum (NYSE: OXY). However, if you want greater exposure at a lower cost, investors may want to consider exchange-traded funds, such as:
XLE Remains a Top Energy ETF to Watch
With an expense ratio of 0.08%, the SPDR Energy Select Sector ETF (NYSE: XLE) provides exposure to companies in the oil, gas, and consumable fuel, energy equipment, and services industries, as noted by State Street SPDR. From its current price of $57.39, we’d like to see it rally back to $62 initially, with the war showing signs of intensifying again.
Higher Crude Prices Could Lift XOP
With an expense ratio of 0.35%, the SPDR S&P Oil & Gas Exploration & Production ETF (NYSE: XOP) provides exposure 51 oil and gas exploration and production segment of the S&P TMI, which comprises the following sub-industries: Integrated Oil & Gas, Oil & Gas Exploration & Production, and Oil & Gas Refining & Marketing, as noted by State Street SPDR. From its current price of $164.05, we’d like to see the XOP ETF retest $190.
IXC Provides Global Energy Exposure
With an expense ratio of 0.40%, the iShares Global Energy ETF (NYSE: IXC) tracks the investment results of an index composed of global equities in the energy sector. Some of its 50 holdings include Exxon Mobil, Chevron Corporation, BP PLC, Total SA, and EOG Resources. From its current price of $53.94, we’d like to see it retest $58 initially.
Navigating Today’s Oil Market
With geopolitical tensions showing few signs of easing and supply concerns mounting, investors will likely continue to keep a close eye on oil prices in the weeks ahead. For those looking to position themselves for further upside without betting on a single company, energy-focused ETFs can provide diversified exposure to a sector that could remain in focus as global uncertainty drives commodity markets higher.
