The 2 Signals That Will Determine XLE’s Performance Through Year-End
The 2 Signals That Will Determine XLE’s Performance Through Year-End
Marc GubertiSun, May 31, 2026 at 6:18 PM UTC
0
ssuaphoto / iStock via Getty ImagesQuick Read -
Energy Select Sector SPDR Fund (XLE) — Brent crude above $100 keeps upstream holdings earning windfall cash flow.
XLE’s 41% combined Exxon and Chevron exposure means buyback execution is critical to supporting the fund’s near-term performance.
Monitor Strait of Hormuz reopening timelines and EIA reports for early signs the geopolitical premium powering XLE’s gains could compress.
The analyst who called NVIDIA in 2010 just named his top 10 stocks and Energy Select Sector SPDR ETF wasn't one of them. Get them here FREE.
Energy Select Sector SPDR Fund (NYSEARCA:XLE) is having the kind of year energy investors waited two cycles for. With Brent crude printing around $117 a barrel and the EIA assuming the Strait of Hormuz stays effectively closed until late May, the geopolitical premium has moved from a tail risk to the central earnings story for every name XLE owns. The fund's four largest holdings (Exxon, Chevron, ConocoPhillips, and Williams) are each up between roughly 23% and 28% year to date. The question now is whether the setup that produced those gains can hold through the back half of 2026, or whether the disruption powering crude prices starts eating into the operating results of the supermajors that dominate the ETF.
XLE gives investors a cheap, liquid way to own the S&P 500's energy complex at a net expense ratio of 8 basis points. The trade-off is concentration: Exxon alone is 24% of the fund, Chevron another 18%, and the top four positions, which also include ConocoPhillips at 7% and Williams at 5%, account for 53% of net assets. When XLE moves, it is mostly Exxon and Chevron moving.
The analyst who called NVIDIA in 2010 just named his top 10 stocks and Energy Select Sector SPDR ETF wasn't one of them.Get them here FREE.
The macro factor: Brent and the Strait of Hormuz
The single most important thing XLE holders should watch is the Brent crude price, specifically what it implies about Middle East supply. The EIA's May Short-Term Energy Outlook estimates that Iraq, Saudi Arabia, Kuwait, the UAE, Qatar and Bahrain collectively shut in 10.5 million barrels per day of crude production in April, and the UAE formally exited OPEC effective May 1, 2026, which cuts the cartel's spare capacity sharply. That is the engine behind Brent's move from a January 2 low near $62 to recent prints above $116.
The threshold to watch is concrete: sustained Brent above roughly $100 a barrel keeps XLE's upstream-heavy holdings (Exxon, Chevron, ConocoPhillips, EOG) earning windfall cash flow. A retracement back toward the mid-$70s, the level that prevailed in Q1 2025 when Brent ended the quarter near $77, would compress per-barrel margins meaningfully. Bookmark the EIA's weekly petroleum status report and monthly STEO, and check them on release dates. The last time Brent broke $100 on a geopolitical shock in 2022, XLE outperformed the S&P 500 by more than 50 percentage points, then gave back much of that lead when prices normalized in 2023.
Advertisement
The fund-specific factor: Exxon and Chevron
Because Exxon and Chevron are 41% of XLE combined, the fund's near-term path runs through their capital return programs and exposure to the Middle East disruption inflating crude prices. Both companies are already taking direct hits. Exxon booked $706 million in Q1 losses from Middle East supply disruptions alongside $3.88 billion of unfavorable mark-to-market derivative timing, and Chevron absorbed roughly $2.9 billion in unfavorable timing effects plus curtailments at its Partitioned Zone and TCO Kazakhstan operations.
The offset is the buyback. Exxon plans $20 billion of repurchases in 2026, with $4.9 billion executed in Q1, and Chevron has now returned more than $5 billion to shareholders for 16 consecutive quarters. Those programs keep XLE's distribution durable while reported earnings get whipsawed by derivative timing. Monitor each quarter's buyback execution rate disclosed in Exxon's and Chevron's 10-Q filings. If either company slows repurchases to defend the balance sheet, as Chevron's net debt ratio climbing to 18% from 16% post-Hess suggests is a real risk, the bid under XLE shares weakens before the dividend gets touched.
One alternative: investors who want the natural gas and AI-power-demand piece of the energy story without Middle East crude exposure can isolate it through Williams Companies (NYSE:WMB) directly, which is up 28% year to date on data center pipeline demand, or through a midstream-focused fund. XLE's 4.58% Williams weight is too small to drive the ETF's outcome.
What to act on
Watch the EIA's weekly Brent print and STEO updates for any sign the Strait of Hormuz reopens earlier than late May, because a faster recovery in Middle East flows would compress the geopolitical premium that has carried XLE all year. And watch Exxon's and Chevron's quarterly buyback pace. With those two names representing 41% of the fund, their decision to keep returning capital or pull back to fund debt and Middle East exposure will set the floor under XLE before crude does.
The analyst who called NVIDIA in 2010 just named his top 10 AI stocks
This analyst's 2025 picks are up 106% on average. He just named his top 10 stocks to buy in 2026. Get them here FREE.
Source: “AOL Money”
