In the wake of OPEC+’s weekend decision to increase oil production quotas, energy ETFs are back in the spotlight—some surfing the wave of positive sentiment, others protecting against geopolitical uncertainty. As oil prices surged on the U.S.-UK trade relations and potential resolutions to the U.S.-China tariff war, ETFs tracking oil futures and energy stocks have experienced rising volume and volatility.
Also Read: US-Iran Talks Fuel Oil Rally: Here Are 3 Energy ETFs In The Radar
- United States Oil Fund (NYSE:USO)
The USO is perhaps the most direct play on crude oil prices. It tracks daily price movements of WTI futures. In the past week, USO has climbed in tandem with WTI's 3%+ rally, and daily trading volumes have surged. But with its exposure to short-term futures, the fund is vulnerable to contango risk, a drag on costs that can cut into returns when longer-dated futures are trading at a premium to near-term contracts. Investors are keen to observe whether the OPEC+ production increase smoothes the front of the curve, lowering the drag. - SPDR S&P Oil & Gas Exploration & Production ETF (NYSE:XOP)
The XOP ETF provides exposure to a basket of upstream energy companies—those that drill, explore, and produce. With CNX Resources (NYSE:CNX) and Exxon Mobil Corp (NYSE:XOM) among its holdings, XOP is prone to magnifying the effect of oil price volatility. The ETF advanced more than 3% following the trade deal and production news. That’s a sign of investor optimism. Exploration companies could gain from stabilized demand and more transparent global trade flows. - ProShares Ultra Bloomberg Crude Oil (NYSE:UCO)
For the adventurous, UCO offers 2x leveraged exposure to WTI futures’ daily performance. It’s become popular with short-term speculators attempting to catch news events, such as the OPEC+ output boost or US-Iran nuclear talks. While potentially profitable in robust upswings, UCO can be brutal in reversals, and thus a weapon best reserved for experienced traders. The fund advanced more than 5% on Thursday following the US-UK trade deal.
What’s Going On Today On The Oil Front?
As the market prices in the possibility of looser supply conditions from OPEC+ and stronger global trade relationships, oil ETFs sit in the middle of this macroeconomic tug-of-war.
OPEC+ said at the weekend it will raise its oil production quotas, speeding the rollback of previous supply cuts as part of its continuing strategy to balance market recovery with geopolitical necessities. The step, which occurs after April production slipped by a small margin due to stoppages in Venezuela, Iraq, and Libya, as discovered by a Reuters Survey, is a measure of the group’s faith in the resilience of demand as the trade environment looks up.
In the meantime, wider macroeconomic mood has been given a significant boost by renewed momentum in global trade diplomacy. The just-announced U.S.-UK trade deal, touted by President Trump as a “breakthrough,” is set to cut tariffs on major goods—including a major cut on UK car exports and complete removal of duties on steel and aluminum. UK Prime Minister Keir Starmer described the agreement as a “catalyst for deeper bilateral trade,” while U.S. Commerce Secretary Howard Lutnick put new opportunities for American exporters at $5 billion. The good news precedes a high-stakes meeting between U.S. Treasury Secretary Scott Bessent and China’s highest-ranking economic official on May 10 in Switzerland to work out long-standing trade tensions. Collectively, these negotiations are sparking hope that a de-escalation of tariff wars can rekindle world demand, specifically for energy-intensive industries, offering a backstop of support for oil prices and commodity-linked ETFs.
While Citi Research trimmed Brent forecasts to $55 for the next three months, the firm maintained that price levels will stabilize later this year at around $60 per barrel, according to another Reuters report. That is good news for energy-themed ETFs, particularly those with less exposure to futures roll costs and more diversification throughout the oil value chain.
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