Oil Prices Are Climbing, and That Means This ETF Could Be a Hot Buy This Year

Oil prices have been soaring this year as the war in Iran disrupts production. The price of crude oil is around $100 per barrel for the first time since 2022. And depending on how long and severe the disruption proves to be, there's the potential for it to rise even higher. Iranian officials have even warned that the price could reach $200 per barrel, due to the instability in the region.

While that would be bad news for the economy and could lead to higher inflation, it would also give oil producers a boost in the process. One exchange-traded fund (ETF) that's been soaring this year is the State Street Energy Select Sector SPDR ETF (NYSEMKT: XLE). It's up around 29% right now, which is a far better performance than the S&P 500, which has fallen by 3% thus far. Here's why adding the ETF to your portfolio could still be a good move today.

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The fund is full of top oil and gas stocks

The State Street Energy Select Sector SPDR ETF holds energy stocks that are part of the S&P 500 index. It's a subset of the broad index that can enable investors to still invest in safe stocks, but with a focus on energy in particular. It contains just 22 holdings, but they include top oil and gas stocks such as ExxonMobil, Chevron, and ConocoPhillips. Those three account for nearly half of the fund's entire portfolio.

There is going to be some risk and volatility with the fund simply due to its exposure to changing commodity prices. But it can be a good way for investors to hedge against the possibility of rising oil prices, while still investing in some quality stocks.

It can be a great holding for the long term

Although the State Street Energy Select Sector SPDR ETF has already amassed significant gains this year, it has underperformed the market in each of the past three years; it may be overdue for a bounce back. And now, with oil prices rising, it has just the catalyst it needs to take off.

But regardless of what happens with oil prices this year, this is still an excellent investment to hold for the long term. With quality stocks, a low expense ratio of 0.08%, and a dividend that yields 2.6%, this is an excellent ETF to hang on to for the long haul. It can provide you with some quality recurring income and help you diversify your portfolio.

David Jagielski, CPA has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Chevron. The Motley Fool recommends ConocoPhillips. The Motley Fool has a disclosure policy.