US-Iran Talks Fuel Oil Rally: Here Are 3 Energy ETFs In The Radar
Brent crude prices rose over the $65-per-barrel level on Monday before retreating slightly, supported by changing geopolitical currents and guarded optimism in the equity markets. The rally in Brent crude, triggered by renewed US-Iran diplomacy and a partial lull in trade war hostilities, brought energy-themed ETFs back into focus, despite lingering concerns about oversupply and weakening global demand.
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Energy Select Sector SPDR Fund (NYSE:XLE)
The broadest energy equity benchmark in the U.S., XLE, picked up steam as oil rose. With heavyweights like ExxonMobil (NYSE:XOM) and Chevron (NYSE:CVX) in its portfolio, the fund reflects crude benchmarks. Its exposure to oil majors with strong dividend yields also makes it a popular bet during periods of geopolitical realignment — such as the Oman negotiations that could remake Gulf oil diplomacy.
iShares U.S. Oil & Gas Exploration & Production ETF (BATS:IEO)
IEO targets exploration and production companies — the most oil-price-sensitive sub-sector. The slight rebound in Brent, driven by the White House’s brief reprieve from tariffs on technology products and optimism for resumed Middle East diplomacy, has lent new life to small- and mid-cap E&P stocks. ConocoPhillips (NYSE:COP) is one of its top holdings. However, the rally might be fleeting, with OPEC lowering its growth and lowering demand projections for oil consumption. Reuters reported that OPEC has lowered its world economic growth forecast this year to 3.0% from 3.1% and cut next year’s to 3.1% from 3.2%.
SPDR S&P Oil & Gas Equipment & Services ETF (NYSE:XES)
Oilfield service companies, like those held in XES, are often the last to reap the benefits of higher prices because of capital spending cycles. The shock OPEC+ cut to accelerate output recovery might trigger upstream activity, indirectly benefiting service providers like Tidewater Inc. (NYSE:TDW) and Transocean Ltd. (NYSE:RIG), one of this fund’s top holdings.
A Diplomatic Thaw
The weekend witnessed a thaw in US-Iran relations as senior officials from both countries held talks in Oman — the first senior-level meeting since 2022. While information is still limited, the tone of the conversation was said to be “constructive,” hinting at a possible blueprint to restart stalled talks on Tehran’s nuclear program. The two sides committed to another meeting, injecting new optimism into a region long influenced by volatility and oil market instability.
Though a long-term deal is far from certain, even the potential for diplomatic breakthrough has moderated concerns about supply disruptions in the Strait of Hormuz — a critical chokepoint for global oil flows. Meanwhile, it also raised questions about whether Iranian crude oil might return to the market in significant quantities, making an already tenuous supply-demand balance even more complicated.
The Bigger Picture
The oil price rally, though propelled by newsworthy catalysts such as tariff delays and diplomatic talks, is confronted with structural headwinds. Nevertheless, ETF investors seem to be content to ride the volatility, particularly with equities mounting a parallel rebound and safe-haven assets lagging.
Investors are now focusing keenly on rig count trends and Q2 CapEx releases to assess the real-world effect of the Brent bounce. According to recent data by the Energy Information Administration, Baker Hughes found that for the week ending April 1, the natural gas rig count dropped to 96 rigs from 103 rigs in the prior week. Typically, lower rigs mean tightened supply, which in turn means upward pressure on oil prices.
On the other hand, banks slashed their price forecasts, with JPMorgan Chase & Co. now seeing Brent at $66 this year and Goldman Sachs expecting an average of $63, as the crude market continues to be poised to encounter substantial surpluses.
While the geopolitical board game is still unfolding, energy ETFs are an on-again, off-again — albeit volatile — strategy on oil’s journey through 2025.
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