The Best Oil and Gas ETF to Invest $1,000 in Right Now

Published: Monday, June 15, 2026 at 2:25 pm

The global oil and gas sector is experiencing significant volatility, driven by geopolitical events that have disrupted supply chains and sent crude oil prices soaring. The Strait of Hormuz closure in late February, stemming from the Iran war, caused Brent crude to surge from approximately $70 to over $120 a barrel in a matter of days. This dramatic price increase has directly impacted the performance of oil and gas exploration and production companies.

The SPDR S&P Oil & Gas Exploration & Production ETF, known by its ticker XOP, has seen a substantial gain of nearly 34% year to date, directly benefiting from the elevated oil prices. However, it is crucial to understand that the stock prices of oil and gas exploration companies do not always move in lockstep with commodity prices. As corporations, they often engage in hedging strategies, locking in prices months in advance, which can buffer immediate impacts.

Despite these hedging practices, the current environment presents a favorable outlook for these companies. The International Energy Agency has characterized the current disruption as the "largest in history." With the Iran war showing no immediate signs of resolution, the possibility of even higher oil prices remains a distinct prospect. This scenario significantly improves the potential for exploration and production firms to translate higher market prices into improved financial performance.

The SPDR S&P Oil & Gas Exploration & Production ETF is constructed to track the S&P Oil & Gas Exploration & Production Select Industry Index. This index focuses on companies involved in integrated oil and gas, exploration and production, and refining and marketing. The ETF holds 49 stocks and employs an equal-weighting strategy. This approach is designed to mitigate volatility within a sector that can be prone to significant price swings.

In contrast to other energy sector ETFs, such as the State Street Energy Select Sector SPDR ETF, which has a substantial weighting in a few major players, XOP distributes influence more broadly. For instance, XOP's combined weighting in ExxonMobil and Chevron is a mere 5.2%, whereas the other ETF has a 39% concentration in these two companies. This equal weighting ensures that smaller companies have a comparable impact on the ETF's performance, thereby diversifying away unnecessary risk.

From a financial perspective, the ETF exhibits attractive characteristics. It boasts over $3 billion in assets, ensuring ample daily trading volume and tight bid-ask spreads. While its expense ratio of 0.35% is not the lowest available, it is considered reasonable for an equally weighted portfolio of approximately 50 stocks. The ETF's valuation also presents a compelling opportunity, with a forward price-to-earnings ratio of 8.6, indicating that the sector is trading at historically low multiples. Despite recent price and revenue growth, the ETF is not considered overvalued.

The prolonged duration of the Iran conflict is expected to be financially advantageous for producers. As many companies likely hedged their oil prices at lower levels, the opportunity to negotiate new hedges at significantly higher prices, such as $80 to $100 or more, could lead to substantial revenue growth, particularly for smaller entities within the ETF's holdings. This suggests that significant revenue and earnings improvements may materialize in the coming quarters.

However, any resolution to the Middle East conflict could swiftly alter this outlook. A de-escalation would likely lead to a rapid decline in oil prices, negatively impacting both revenue and profitability. Given the current escalation of tensions, the prevailing sentiment leans towards a "higher for longer" scenario for oil prices.

An investment in the SPDR S&P Oil & Gas Exploration & ETF is intrinsically linked to geopolitical developments. The fund is demonstrably more attractive when oil prices are on an upward trajectory. Considering the current macroeconomic outlook, financial conditions, and relative valuation, this ETF emerges as a strong contender in the current market.

BNN's Perspective: The current geopolitical climate has undeniably created a complex and volatile environment for energy markets. While the SPDR S&P Oil & Gas Exploration & Production ETF presents a compelling opportunity due to its diversification and attractive valuation in the face of rising oil prices, investors should remain cognizant of the inherent risks associated with geopolitical instability. A moderate approach would involve carefully assessing individual risk tolerance and considering the potential for rapid shifts in market sentiment should geopolitical tensions ease.

Tags: oil and gas ETF, SPDR S&P Oil & Gas Exploration & Production ETF, XOP, Brent crude oil, Iran war, Strait of Hormuz, oil prices, exploration companies, production companies, geopolitical risk, energy sector, investment, hedging, International Energy Agency, IEA, equal weighting, diversification, valuation, price-to-earnings ratio, price-to-book ratio, revenue growth, earnings improvement

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