As a sector, energy has been one of the dominant corners of the market in 2026, and in some respects it all comes down to a handful of factors: supply disruption, refining margins, and a seismic shift in geopolitics with the advent and continuation of the Iran war. Regardless of whether this conflict is resolved this year, it's likely that the global oil market will continue to feel the impacts for a long time because of massive disruptions to pumping stations and pipelines in the Middle East, as well as how the major players in energy realign and shift their priorities.
A number of oil and gas exchange-traded funds (ETFs) offer varied approaches to the energy sector. All have performed exceptionally well, returning at least 40% year to date (YTD), but it's crucial that investors understand their differences to best match their investment goals amid a turbulent market.
Why Energy ETFs May Continue to Shine Brightly
Both Brent and WTI crude have traded well above $100 in September, dramatically higher than the $70-range that these benchmarks hovered around at the start of the year. With the Strait of Hormuz and the Saudi Petroline both heavily disrupted by the conflict, millions of barrels of oil per day that would normally pass have slowed dramatically or stopped altogether, creating a massive supply shock.
The result is that some energy companies have benefited in a big way—oil refiners, for instance, have approached record highs over the summer—while those in different parts of the value chain have not seen the same results. ETFs with a suitable view of the sector may reap these benefits while mitigating individual stock risk.
An Equal-Weight Approach That Favors Smaller E&P Names
The SPDR S&P Oil & Gas Exploration & Production ETF (NYSEARCA: XOP) reached its highest level in more than 11 years in September, a reflection of both the oil price landscape and the fund's construction.
The fund uses a modified equal-weight approach that benefits smaller exploration and production (E&P) companies alongside their larger rivals. This can lead to strong results during periods of high oil prices, as smaller E&P firms may also have proportionally lower fixed costs, meaning more of each dollar's worth of crude can go directly to cash flow.
The fund's portfolio is not massive, with just 53 holdings, but it is fairly divided between large- and mid-cap companies and includes a modest portion of small-cap names. Because the E&P space is known for dividend payments, XOP is also a potential source of income in addition to its capacity to appreciate; the fund has a dividend yield of 1.8%. The fact that the equal-weight approach and this distribution are available for a fairly small expense ratio of 0.35% may add to the appeal, on top of XOP's 45% in returns so far this year.
A Similar Approach to XOP, But Leaning on the Major E&P Firms
With 48 positions, the iShares U.S. Oil & Gas Exploration & Production ETF (BATS: IEO) has a portfolio that overlaps quite a bit with XOP. Both funds have a specialized focus on the E&P corner of the energy sector, but IEO does not weigh holdings equally.
Indeed, a handful of major companies—ConocoPhillips (NYSE: COP) and Marathon Petroleum Corp. (NYSE: MPC), among others—are weighted quite heavily. The top 10 positions make up about 72% of the fund's investments.
This approach is great for investors seeking focused exposure to the largest and most stable names in the E&P sector, but it may miss out on some of the potential gains smaller companies offer.
On the other hand, it can keep risk levels down for investors cautious about exploring an already volatile space.
IEO has a comparable dividend yield of 1.7%, but its expense ratio is two basis points higher than XOP at 0.37%, and its performance of 51% YTD also exceeds its rival's.
Oil Refiners Outperform, But at a Higher Cost
The VanEck Oil Refiners ETF (NYSEARCA: CRAK) takes a different view from the funds above, targeting oil refiners specifically.
This ETF has the narrowest portfolio of all of these products, with just 26 names, including some that account for 8% or more of the asset base on an individual basis.
CRAK also looks outside of U.S. companies, with only about 37% of the portfolio given over to domestic stocks. This makes the fund appealing to investors seeking to diversify outside of the U.S. energy space.
Although CRAK's dividend yield is smaller than the funds above at 1.2%, and it is considerably more expensive with an expense ratio of 0.61%, this fund has far outperformed XOP and IEO this year. It has returned 69% YTD, and if crack spreads remain elevated going forward, CRAK could continue its rally.
The article "3 Energy ETFs Built for Oil’s New $100-Plus Reality" first appeared on MarketBeat.
