Oil prices fell 1% Tuesday with geopolitical change and economic uncertainty contributing to market expectations.

Diplomatic talks between U.S. President Donald Trump and Russian President Vladimir Putin encouraged the prospect of a Ukraine ceasefire that might relax sanctions on Russian fuel exports, according to Reuters. But analysts warn it will take time for a meaningful recovery in Russian oil output. While this is, at least in part, due to the effects of Trump’s trade tariffs on energy demand, there are a number of other factors coming into play. These combine to create a complicated energy scenario, making energy ETFs a focal point of investor interest.

How Energy ETFs Fit Into The Picture

ETFs provide exposure to the energy sector with risk management against changing oil prices and geopolitical events. Here’s how various kinds of energy ETFs could be impacted:

Diversified Energy ETFs: These offer diversified exposure to exploration, production, refining and transport, enabling investors to control volatility. Energy Select Sector SPDR Fund XLE and the iShares U.S. Energy ETF IYE are options to consider, with expense ratios of 0.08% and 0.4%, respectively.

Exploration and Production (E&P) ETFs: Concentrated on extracting oil and gas, these ETFs can experience volatility due to changes in supply and demand. Investors may look at the SPDR S&P Oil & Gas Exploration & Production ETF XOP and the iShares U.S. Oil & Gas Exploration & Production ETF IEO. The ETFs carry an expense ratio of 0.35% and 0.4%, respectively.

Midstream ETFs: Comprising less price-volatile components, these may be rewarded with higher oil transport and storage requirements. Examples include the Alerian MLP ETF AMLP and the Global X MLP ETF MLPA, with expense ratios of 0.85% and 0.45%, respectively.

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Contributing Factors To Slowing Oil Prices

• If sanctions against Russia are relaxed, its crude output — presently at 9.2 million barrels per day (bpd), from 10.6 million bpd in 2016 — might rise. But significant supply shifts might not be immediate, per the Reuters report.

• Trump's tariffs are pressuring global growth. The OECD warns of slower growth, while Wood Mackenzie cut its 2025 Brent crude forecast by $7 to $73 per barrel, according to Reuters.

• OPEC+ is going ahead with its scheduled April output increase, pumping additional supply into the market.

• Middle East uncertainty is another underpinning factor in oil prices. Trump’s military intervention in support of Iran-aligned Houthis in Yemen and Israeli airstrikes on Gaza inject volatility into the global oil supply.

• Chinese and German economic stimulus may be able to sustain oil demand, offsetting some of the pressure on prices lower.

• This week, the American Petroleum Institute (API) and U.S. Energy Information Administration (EIA) will report on oil inventories. Reuters reported that a 0.9 million barrel build is expected by analysts, which may have an impact on short-term price action.

Oil prices continue to be very volatile based on geopolitical and economic reasons. Energy ETFs provide investors with the means to ride out these changes, managing risk while achieving opportunity. Monitoring worldwide trends and inventory reports will be paramount in making smart investment decisions.

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