Can Energy ETFs Shine as Glut Fears Crush Oil, Investors Flee to Gold, BTC?

Oil is acting up again. Benchmark crudes like West Texas Intermediate (CL)—that’s the key U.S. oil price gauge—and Brent (BZ), its global cousin, tested one-month lows late this month. This drop sticks around thanks to the relentless global trade policy tension, especially U.S.-China tariff tussles, that have kept prices in the dumps all year.

 The big scare? Fears of too much oil flooding the market, or a “supply glut”, sparked by chatter that Ukraine might agree to a U.S.-backed peace deal with territorial concessions. This has raised speculations that some sanctions on Russian oil could be eased, despite fresh U.S. hits on Russia’s largest oil producers, Rosneft and Lukoil, in late October.

OPEC+ Pumps the Brakes

The Organization of Petroleum Exporting Countries (OPEC) and its allies (OPEC+) — the oil cartel controlling half the world’s crude supply — have also played a key role in this. They started to crank up output in stages since April, flipping from their earlier voluntary cut policy. By early November, they had hiked targets by around 2.9 million barrels per day (bpd), hitting about 28.43 million bpd after adding 30,000 bpd in October. But earlier this month, they hit pause on more increases through Q1 next year, blaming “seasonality”—code for winter slowdowns. But first, they are targeting a small raise for this December.

Energy ETFs: Winners and Losers

Amid all of these, how are energy exchange-traded funds (ETFs) holding up? The key focus here is on the Energy Select Sector SPDR Fund (XLE), the Vanguard Energy ETF (VDE), and the SPDR S&P Oil & Gas Exploration & Production ETF (XOP).

Over 12 months, total returns — that is, price jumps plus reinvested dividends — are in the red across the board. The XOP, which focuses on oil explorers, producers, and some refiners, tanked over 8%, while the much broader-based ETFs, XLE and VDE, took less impact, have shed more than 3%. The latter two are dominated by integrated giants such as Exxon Mobil (XOM), Chevron (CVX), and ConocoPhillips (COP).

Seen from a year-to-date (YTD) angle, it should come as no surprise that the largest of the three, the XLE, which currently manages more than $26.7 billion in assets — compared to VDE’s approximately $7 billion and XOP’s $1.75 billion– leads the pack.

XLE has gained 6% since January, compared to the marginal fall of 0.54% in XOP. Meanwhile, VDE’s market-cap–weighted exposure — combining the oil supermajors with a long tail of smaller producers and oilfield-services stocks — has paid off, with the fund up about 5% so far.

For the XLE, the modest performance continues its mid-single-digit growth pattern from last year. Despite its modest recent performance, XLE remains well above pre-pandemic levels, supported by the powerful 2021–2022 rally. XOP, by contrast, still lags after its 2024 decline and remains far below its 2014 peak, from which it fell nearly 90% to its lowest in March 2020.

ETFs Face Fund Flight

While energy ETFs show modest YTD pops, investors are chasing returns in gold — which recently hit an all-time high of $3600 in early September amid the trade policy chaos — and Bitcoin. Over the last 12 months, while the flagship gold ETF (GLD) gained $19 billion and the foremost crypto ETF, the IShares Bitcoin Trust Registered (IBIT), attracted $29 billion in net flow. In contrast, $8 billion left XLE, $698 million exited VDE, and XOP reported a net flow of $694 million.

Highly specialized and niche energy funds are not any different, as data for the United States Oil Fund LP (USO) and VanEck Oil Services ETF (OIH) shows. USO, which tracks crude oil futures, posted a net flow of $367 million, while the OIH, which targets energy equipment and oilfield services/drilling providers, saw $606 million more leave its fund than came in.

Consequently, as of the end of September, U.S. hedge fund managers — per their Q3 2025 13F filings submitted to the American securities watchdog — trimmed their shares in XLE/XOP/VDE big-time, compared to their December 2024 highs. With gold losing its recent peak, they also lowered their GLD holdings while tapping USO and OIH, likely to take advantage of expected volatility in oil prices and production trends.

Big Oil Fights Back as Oilfield Titans Turn to AI

Third-quarter 2025 earnings from Chevron, ExxonMobil, Shell (SHEL), and BP (BP) showed rising refining profits, which helped to offset weaker drilling earnings from cheap oil. The trick? Pumping more barrels.

Chevron cranked global output 21% to 4.1 million bpd despite a 28% hit to its upstream earnings, with its earnings per share falling by almost the same percentage from a year ago. Similarly, ExxonMobil nudged its production 4% higher to 4.77 million bpd, but profits dipped over 13% to $7.55 billion during the quarter.

Stock-wise, European producers steal the show while U.S. peers lag, even as Big Oil continues to lean on share buybacks and dividends. YTD performance goes thus:

• BP (BP) up almost 28% to $35.73
• TotalEnergies (TTE) jumped over 24% to $65.44
• Shell (SHEL) rose more than 21% to $73.10
• ExxonMobil (XOM) gained over 10% to hit $114.60
• Chevron (CVX) added 7% to reach $148.70

Oilfield services heavyweights Schlumberger (SLB), Halliburton (HAL), Baker Hughes (BKR) stay tough as drilling demand cools, as producers boost U.S. shale oil output by using new technologies to extract more oil from existing wells.

To salvage the situation, oilfield services firms are going after deals from tech hyperscalers, supplying turbines and other power gear used by AI data centers to run high-performance cloud computing projects.

Since the start of the year, while Schlumberger and Halliburton are down by almost 5%, Baker Hughes has climbed by about 22%.

Cash Kings Undervalued as Big Tech Beats Big Oil

Despite declines in oil majors’ cash flow year-over-year and lower gross profit margins compared to their prior quarters, they remain cash-rich, with money available for dividends, debt reduction, and new projects. For instance, in Q3 2025, ExxonMobil generated $6.06 billion in free cash flow, while Shell produced $7.24 billion.

Furthermore, oil majors’ stocks continue to trade at relatively low price-to-earnings (P/E) ratios, meaning investors pay less for each dollar of earnings than they do for tech giants like Alphabet (GOOGL) or Nvidia (NVDA) — ExxonMobil at 16.6 and Shell at 14.8, versus Google at 31.9 and Nvidia at 44.

Some oil majors have steadily increased their P/E ratios over time. For instance, at the end of 2017 — a pre-pandemic year following the 2014–2016 oil price slump — ExxonMobil’s P/E was 12.52 and Chevron’s 18.28, compared to Chevron’s 21.1 as of November 27, 2025.

Similarly, their free cash flow yield, showing cash generated relative to market value, also surpasses tech firms over the last 12 months: TotalEnergies and Chevron, respectively, at 8.06% and 4.85% versus Meta (META) at 2.74% and Alphabet at 2.16%. While tech companies deliver higher returns on invested capital, energy stocks appear undervalued, highlighting a potential opportunity in cash-rich companies ready to fund future growth.

Global Supply, Demand, and OPEC+ Politics – What’s Next?

Since the start of the year, U.S. commercial oil inventories have risen by 7.4 million barrels, fueled by lower exports, weaker domestic demand, and record domestic production. The government’s Strategic Petroleum Reserve has also seen increased storage, which could provide some price support.

At the same time, the International Energy Agency (IEA) expects global oil demand to rise steadily through 2035 and 2050, from today’s 100 million bpd to 105 million, even as the U.S. campaigns for expanded fossil fuel production and slows its renewable energy push. Meanwhile, third-quarter demand rebounded, led by stronger deliveries to China.

Globally, oil supply has risen by 6.2 million barrels per day since January, and the IEA expects an additional 3.1 million bpd this year, reaching 106 million bpd. By 2026, the agency sees supply growing to 108.7 million bpd. According to David Russell, Global Head of Market Strategy at TradeStation, supplies have been tighter than hoped, even as geopolitical risks linger.

While the latest U.S. sanctions on Russia have created a temporary supply squeeze, Russia, for the most part of the year, rerouted exports to Asia (especially to China and India) at discounted prices.

Amid these, key OPEC member Iran has increased output, while China continues to stockpile its crude oil inventory at current lower prices despite OPEC+’s planned pause on supply raises between January and March next year.

These developments indicate both bullish and bearish pressure on oil prices, even as an above-average hurricane season is expected this year — according to Colorado State University’s recent forecast — which could temporarily support prices, even though it may disrupt production.

With their free cash flow, energy companies remain well-positioned to capitalize on future growth opportunities even as they prepare for the eventual energy transition. Moreover, with output rising amid modest global demand, the effects of U.S. tariffs and sanctions on Russia will become clearer over time.

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