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Can Oil & Energy ETFs Continue to Soar?

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Oil prices shot up recently amid escalating tensions in the Middle East, with Brent crude topping $90 per barrel. Energy is the best-performing sector year to date, up about 14%.

Concerns of a broader regional war have increased since Iran launched more than 300 drones and missiles at military targets in Israel. This was the first direct attack by Tehran on Israeli territory. The market is now bracing for Israel's response.

Severe damage caused by Ukrainian drone attacks on several Russian oil refineries has led Russia to ban gasoline exports to meet domestic demand. Despite Western sanctions, Russia had remained a key energy supplier in global markets, particularly to countries like China, India, and Turkey.

Strong economic data from the US and globally have also boosted oil and other economically sensitive commodities. Meanwhile, supply remains constrained due to production cuts imposed by OPEC and its allies since late November 2022.

The energy sector accounts for just about 4% of the S&P 500 (SPY - Free Report) index despite its excellent performance over the past few years. It is also the cheapest sector in the market, with a forward P/E of just 13.04, compared to the S&P 500's 21.24.

The Energy Select Sector SPDR Fund (XLE - Free Report) , the most popular product in the space, tracks a market cap weighted index. Exxon Mobil (XOM - Free Report) and Chevron (CVX - Free Report) account for about 40% of the portfolio.

The SPDR S&P Oil & Gas Exploration & Production ETF (XOP - Free Report) follows an equal-weighted approach. Marathon Oil (MRO - Free Report) and ConocoPhillips (COP - Free Report) are among its top holdings currently.

The United States Oil Fund LP (USO - Free Report) holds short-term WTI crude oil futures contracts.

To learn about these ETFs, please watch the short video above.


Disclosure: Neena owns XLE & XOP in the ETF Investor Portfolio.


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