The energy sector is facing heightened investor scrutiny as recent developments have added uncertainty to oil markets.

A combination of rising U.S. crude inventories, geopolitical tensions and trade concerns has triggered volatility in oil prices, leading to mixed reactions across energy-related stocks and ETFs. With these changes in play, investors are closely watching oil-focused ETFs to gauge their exposure and potential risks.

ETFs To Watch Amid These Developments

For investors looking to navigate these shifting dynamics, several energy-focused ETFs offer exposure to key industry players:

Energy Select Sector SPDR Fund XLE: This ETF tracks large-cap energy stocks, including major oil and gas giants like ExxonMobil Corp. XOM and Chevron Corp CVX. Given recent market pressures, XLE has experienced fluctuations, but it remains a popular choice for those seeking broad exposure to the sector, with an expense ratio of 0.09%.

Vanguard Energy Index Fund ETF VDE: Offering a more diversified portfolio, VDE covers both upstream and downstream oil and gas companies, providing investors with a balanced approach amid market uncertainty. Apart from Exxon and Chevron, the fund also allocates a significant weightage to companies like ConocoPhillips COP. The recent volatility in the oil sector has taken most of the stocks in the ETF for a ride.

United States Natural Gas Fund UNG: Unlike oil-focused ETFs, UNG provides investors with exposure to natural gas futures. This ETF is particularly relevant for those looking to diversify within the energy sector, as natural gas prices are influenced by different factors than crude oil, including weather patterns, production levels and storage data. Given the increasing reliance on natural gas for power generation and heating, UNG offers a distinct alternative for energy-focused investors.

Also Read: 2 Energy Stocks to Play Both Sides of Tariff Uncertainty

Oil Prices Plummet, Consumer Sentiment Damp

Oil prices recently hit a six-month low as U.S. crude stockpiles increased by 3.6 million barrels as of March 5. This unexpected rise in supply has weighed heavily on energy stocks, including major players such as ExxonMobil.

As one of the largest integrated oil and gas companies, Exxon is particularly vulnerable to declining crude prices, which directly impact its upstream profits. Lower prices also squeeze refining margins, making it more difficult for companies to offset losses through downstream operations. Thus, ETFs with significant allocations in Exxon, such as XLE and VDE stand to be affected by oil price slips.

Adding to the pressure, OPEC+ has confirmed its plan to roll back production cuts in April, fueling concerns about a potential supply glut. This decision has further dampened investor sentiment in the energy sector.

Moreover, the Trump administration is considering a strategy to halt and inspect Iranian oil tankers at sea, a move aimed at curbing Tehran's oil revenue and its potential links to nuclear proliferation. If implemented, these inspections could delay crude deliveries, leading to supply chain disruptions.

Iran has previously retaliated against such measures by seizing foreign vessels, raising concerns about further escalation in maritime tensions.

Trade tensions have resurfaced with the Trump administration imposing import tariffs of 25% on Mexico and Canada and an additional 10% on China. Given that Canada is the top supplier of crude oil to the U.S., these tariffs could have significant implications for energy trade. A third of all U.S. crude imports come from Mexico, further amplifying concerns about the impact of protectionist policies on the energy sector.

With oil prices experiencing turbulence, geopolitical tensions rising and trade policies shifting, energy-focused ETFs are in the spotlight. Whether investors see the current downturn as a buying opportunity or a reason to tread cautiously, it would be prudent to stay informed about market trends and ETF holdings.

Read Next: