Canadian Energy ETFs for an Oil & Gas Boom in 2025

ByDan Kent Published On:

​
​
My Best ETF for 2025

I like the diversified element of this fund and the lack of certain industries, at a reasonable fee. I think this ETF has significant potential in Canada's market moving forward. Grab my report for yourself for free below:

    We won't send you spam. Unsubscribe at any time.

    ​
    ​Free Report: High Quality Niche ETF

    I like the diversified element of this fund and the lack of certain industries, at a reasonable fee. I think this ETF has significant potential in Canada's market moving forward.

    Get my report below:

      We won't send you spam. Unsubscribe at any time.

      ETF investors: my case study has fundamentally changed how ETF investors look at the markets and their portfolios.

        Key takeaways

        Leverage vs. Stability – Leveraged ETFs like HOU offer high-risk, high-reward opportunities, while diversified funds like XEG and ZEO provide more balanced exposure.

        Energy Sector Momentum – With rising oil prices and increasing global demand, Canadian energy stocks are positioned for potential growth.

        Different Strategies for Investors – These ETFs offer exposure to crude oil futures, energy producers, and midstream infrastructure, catering to different risk appetites.

        One ETF I like way better than the ones on this list.

        Oil and gas has had a wild half-decade. We’ve gone through a global shutdown in 2020 that collapsed oil prices to a travel boom in 2021/2022 that saw oil skyrocket in price.

        Fast forward to 2023/2024, and we saw an economic slowdown in light of higher interest rates and sticky inflation. Where is the middle ground for oil equities and the price of oil and natural gas?

        It’s hard to say. This is the most volatile environment we’ve witnessed for energy companies and energy prices in quite some time. So, if we’re going to invest, we need to be prepared for considerable swings in price.

        As a result, many Canadian investors aren’t comfortable selecting individual oil stocks at this point. Instead, they are looking toward some Canadian energy ETFs that can give them exposure to the entire sector.

        The broader exposure will mitigate individual equity concentration and likely lower volatility. So, I’ll dive into some of the top energy ETFs you can buy in Canada today.

        What are the best oil ETFs in Canada right now?

        Direct crude oil price exposure

        Global X NYMEX Crude Oil ETF (HUC)

        HUC tracks the price of NYMEX light sweet crude oil futures, giving investors a way to invest in oil prices without owning physical barrels. It is a pure-play ETF for those betting on rising oil prices.

        • Direct oil price correlation – Unlike energy equity ETFs, HUC closely tracks crude oil futures, offering a direct play on oil market fluctuations.
        • Inflation hedge – Oil prices often rise with inflation, making this ETF a potential hedge against purchasing power erosion.
        • Lower equity market volatility – HUC is less influenced by company-specific risks that impact energy stocks.
        • Currency exposure – Since oil is priced in USD, fluctuations in the CAD/USD exchange rate can impact returns.
        • Liquidity risk – Futures-based ETFs depend on rolling contracts, which may introduce contango effects during roll periods.
        • OPEC+ Supply Decisions – Any production cuts or increases will impact crude oil prices directly.
        • Geopolitical Events – Conflicts in oil-producing regions can create supply shocks, influencing price spikes.
        • Recession Risks – Economic slowdowns reduce oil demand, potentially capping upside potential.
        • Renewable Energy Transition – Long-term structural shifts toward green energy may pressure oil prices in the future.
        • Oil price volatility – Sharp price swings due to global supply and demand factors.
        • Contango risks – Futures contracts may result in lower returns compared to spot oil prices.
        • No dividend income – Unlike energy equity ETFs, HUC does not provide dividends, making it less appealing for income investors.

        2x leveraged crude oil exposure

        BetaPro Crude Oil Leveraged Daily Bull ETF (TSE:HOU)

        HOU is a high-risk, high-reward ETF that provides 2x daily leveraged exposure to crude oil prices. It’s designed for short-term traders looking to capitalize on sharp oil price movements.

        • Amplified returns – A 2% move in oil prices results in a 4% move in HOU, making it ideal for short-term momentum traders.
        • Liquidity and trading volume – HOU offers strong liquidity, making it attractive for active traders.
        • No company-specific risk – Unlike energy stock ETFs, HOU’s movement is purely tied to crude oil futures.
        • Short-term tactical play – Best suited for short-term positions rather than long-term holding due to daily rebalancing.
        • Potential inflation hedge – Rising oil prices can serve as protection against inflationary pressures.
        • Crude oil price swings – HOU thrives in volatile oil markets with sharp price movements.
        • Central bank policies – Interest rates influence economic growth and, in turn, oil demand.
        • Supply chain disruptions – Any disruptions in major oil-producing regions can lead to rapid price spikes.
        • Speculative trading activity – Leveraged ETFs often attract hedge funds and short-term traders, increasing volatility.
        • Daily compounding risk – Long-term holding can lead to unexpected returns due to daily resets.
        • Extreme volatility – Leveraged ETFs magnify losses as much as gains.
        • Not suitable for long-term investors – Due to decay effects, HOU is not ideal for buy-and-hold strategies.

        Broad Canadian energy sector exposure

        iShares S&P TSX Capped Energy Index ETF (XEG.TO)

        XEG provides exposure to a basket of Canadian oil and gas producers, focusing on the largest energy companies in the S&P/TSX Composite Index. It’s a good option for investors seeking diversified exposure to Canada’s energy sector.

        • Top Canadian energy companies – Includes major names like Suncor, Canadian Natural Resources, and Cenovus.
        • Strong dividend potential – Many Canadian energy firms pay attractive dividends, offering income in addition to growth.
        • Diversified exposure – Covers both oil and gas producers, reducing risk compared to individual stock holdings.
        • Cyclical upside – Energy stocks tend to perform well in inflationary and commodity bull cycles.
        • Liquidity and scalability – XEG is one of the largest and most liquid Canadian energy ETFs, making it easy to trade.
        • Earnings momentum – Strong earnings reports from energy majors could drive ETF performance.
        • Dividend sustainability – Companies with healthy balance sheets may continue to increase dividends.
        • Government policies – Carbon tax regulations and pipeline approvals will impact long-term profitability.
        • Oil demand recovery – China and India’s reopening could boost global energy demand.
        • Oil price dependency – Heavily correlated with crude oil prices, leading to potential volatility.
        • Regulatory risks – Environmental policies could impact long-term energy sector viability.
        • Sector concentration – XEG is focused solely on energy, making it less diversified than broader market ETFs.

        Equal-weighted energy exposure

        BMO Equal Weight Oil & Gas Index ETF (ZEO.TO)

        ZEO provides diversified exposure to Canadian energy stocks but gives equal weighting to holdings, reducing concentration risk from large-cap oil producers.

        • Balanced sector exposure – Unlike XEG, ZEO ensures smaller energy stocks are equally represented.
        • Less dominance by oil majors – Investors avoid overexposure to just a few large companies.
        • Dividend income – Features exposure to dividend-paying energy stocks, making it attractive for income seekers.
        • Potential for small-cap outperformance – Smaller energy stocks may deliver higher growth in bull markets.
        • Long-term sector exposure – A good option for investors looking for broad energy exposure without overweighting large-cap stocks.
        • Mid-cap energy earnings – Smaller energy companies could see higher growth if oil prices remain high.
        • Sector rotation – Institutional investors shifting capital to energy could boost performance.
        • Pipeline developments – Midstream infrastructure can support long-term growth in the sector.
        • Higher volatility – Small- and mid-cap energy stocks tend to be more volatile than large-cap peers.
        • Energy sector cyclicality – Oil and gas stocks can see dramatic swings based on commodity prices.

        Tax-efficient Canadian energy exposure

        Global X S&P/TSX Capped Energy Index Corp Class ETF (HXE.TO)

        HXE provides exposure to the S&P/TSX Capped Energy Index, similar to XEG, but uses a corporate class structure to enhance tax efficiency. This makes it attractive for investors looking for energy sector exposure while minimizing tax drag on returns.

        • Tax-efficient structure – Unlike traditional ETFs, HXE uses a corporate class structure to minimize taxable distributions, making it ideal for non-registered accounts.
        • Exposure to top Canadian energy stocks – Includes major names like Suncor, Canadian Natural Resources, and Cenovus, offering broad coverage of the sector.
        • Growth and dividend potential – While focused on capital appreciation, it indirectly benefits from energy stock dividends.
        • No annual taxable distributions – Investors defer capital gains tax until the ETF is sold, optimizing after-tax returns.
        • Lower fees – HXE has a competitive management fee compared to some other energy ETFs.
        • Oil price momentum – HXE benefits from rising crude oil prices, which drive earnings growth in Canadian energy companies.
        • Dividend sustainability – While HXE doesn’t distribute dividends, rising payouts from energy stocks support long-term capital appreciation.
        • Regulatory environment – Policies on carbon pricing and pipeline development could impact sector growth.
        • Long-term energy demand – Global reliance on oil and gas, despite the push toward renewables, keeps energy stocks relevant.
        • Sector concentration – Heavily weighted in energy, making it vulnerable to downturns in oil and gas markets.
        • Oil price volatility – HXE’s performance is directly linked to the cyclical nature of crude oil prices.
        • Tax policy changes – Any changes to corporate class ETF taxation could reduce its tax advantages.

        The bullish case for Canadian energy stocks and energy ETFs

        In 2020, the oil and gas sector was decimated due to the COVID-19 pandemic. Energy companies across the globe saw their stock prices collapse, cash flows cease, and dividends were cut or suspended.

        For the most part, it wasn’t hard to see how this short-term collapse in crude oil demand was temporary. In fact, we’ve witnessed a complete 180 in the industry over the last few years as energy prices have surged.

        There is also the harsh realization lately that clean energy like solar, wind and hydro are a lot farther away from replacing traditional fossil fuel methods of energy generation than many predicted.

        When we consider that a major producer like Canadian Natural Resources has a breakeven price in the $30 a barrel range, we can see how frothy this environment truly is for top-notch producers.

        Suppose crude oil can be maintained at $70 a barrel or higher. In that case, energy stocks and oil and gas producers will be able to return significant cash flows to their shareholders via share buybacks and increased distributions, much of which we’re already witnessing.

        The bullish case for oil companies during inflationary periods

        Commodities perform well during inflationary periods. This isn’t just crude oil, but metals such as gold and silver. And, unless you’ve been living under a rock the last year or so, you know that policy makers, at least south of the border, are having a very hard time hitting their 2% inflation target.

        Yes, it’s coming down here in Canada. However, our energy sector is heavily reliant on the United States. History has shown it takes inflation a very long time to settle, and this is no doubt apparent in the US.

        So, adding some oil and gas companies to your portfolio today makes sense. Although these companies will likely underperform over the long run, we must look to commodity plays not for their past performance but for future potential.

        Commodity prices like oil will rise and fall through different economic cycles, and with it, so will the Canadian energy sector. You’ll need to time your exit regarding these types of investments. But, if you catch the industry on an upcycle, money will be made.

        Why Exchange Traded Funds (ETFs)?

        In short, ETFs are a much better alternative to mutual funds as they have much lower fees. For those who don’t have the time or know-how to buy individual stocks in Canada, ETFs are a great way to passively invest.

        This is because they allow you to buy an entire sector or basket of stocks without having to bet on an individual company to succeed. This is even more critical in the oil and gas sector.

        Some companies were coming out of the pandemic that returned in excess of 1000%, while others completely fizzled out. Choosing the wrong company could have had you underperforming by a wide margin. This is why buying an energy ETF can be seen as a much better option for the average retail investor.

        Finally, they provide instant diversification, a critical factor in successful investing.

        Most of these top oil ETFs provide instant diversification to the sector, which could see considerable upside in 2025 and beyond.

        As the saying goes, “time in the market is better than timing the market.” This has proven to stand the test of time. Taking a position in the top Canadian energy ETFs is one of the best options to diversify and gain exposure to the sector.

        Just announced: Free ETF study

        To give you a taste of what kind of research and opinions are available in my monthly ETF Insights newsletter I am releasing a game changing study I completed for my newsletter.
        ​
        In this study I scrutinize a very popular ETF strategy and investigate the ETFs it involves.
        ​
        This sample newsletter is completely free, no-BS. Just enter your email below and click the button and I will send the sample newsletter direct to your inbox.

          We respect your privacy. Unsubscribe at any time.