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.

On Wednesday, 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.”

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Sure, calls for $150 oil may sound aggressive. 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:

SPDR S&P Oil & Gas Exploration & Production ETF 

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.

Sincerely,

Ian Cooper