OPEC Supply Surge Sinks Energy ETFs
- Energy is the second-worst-performing sector this year.
- The outlook doesn’t suggest a turnaround is imminent.
Aggressive supply hikes from OPEC+ have turned 2025 into a bruising year for energy investors.
Over the weekend, the oil-producing alliance announced a 411,000 barrel-per-day output increase, the third-straight month of hikes of that size. The decision, led by Saudi Arabia, reflects the kingdom’s push to claw back market share from quota-busting peers like Kazakhstan, as well as from U.S. shale producers now reeling under the weight of lower oil prices.
The move has already reversed roughly half of the group's output cuts from recent years. But the response within the cartel was far from unanimous, with Russia and others expressing concern about the continued flood of supply.
USO Down as WTI Remains Depressed
The market reaction has been muted. While WTI crude gained around 2.5% on Monday, it remains at depressed levels. Prices briefly dipped to $57 per barrel in May—the lowest since 2021—before recovering slightly to last trade around $62.
The pain is showing up in energy-related ETFs.
The United States Oil Fund (USO), which tracks WTI crude oil futures, is down nearly 9% year to date. Meanwhile, the Energy Select Sector SPDR Fund (XLE), which holds major S&P 500 energy stocks like Exxon Mobil Corp. (XOM) and Chevron Corp. (CVX), is off 3.5% in 2025. That makes energy the second-worst performing sector behind only consumer discretionary, which has dropped 4.7%.
For comparison, the broader SPDR S&P 500 ETF Trust (SPY) is up 1% on the year.
Supply-Demand Imbalance Looms
Unfortunately for energy bulls, the outlook doesn’t suggest a turnaround is imminent.
According to the International Energy Agency’s latest monthly oil report, global oil supply is expected to rise by 1.6 million barrels per day in 2025, and by another 970,000 barrels per day in 2026.
That far outpaces projected demand growth, which is forecast to average 740,000 barrels per day in 2025 and 760,000 barrels per day in 2026.
“With the rises in global supply expected to considerably outpace demand growth, oil inventories are forecast to jump by an average of 720,000 barrels per day this year and 930,000 barrels per day next year, compared with a decline of 140,000 barrels per day in 2024,” the IEA wrote. “This sets the stage for a further rebalancing of supply and demand fundamentals.”
For energy ETFs, that imbalance may continue to weigh on performance unless geopolitical risks or surprise production cuts provide a new catalyst.
