Oil ETFs: Supply of Oil Can’t Keep Up With Demand

November 25th at 11:00am by Tom Lydon

ETF oilThe global appetite for oil seems insatiable, and it’s growing. However, the supply of oil is not coming out as fast as it’s being used. Oil exchange traded funds (ETFs) may start reflecting the rise in oil prices as the disparity between supply and demand widens.

Eating away at the stockpiles of crude oil, the growing world oil demand will probably outstrip supply in 2010, David Sheppard and Joshua Schneyer for Yahoo! Finance. (Why oil ETFs are stirring).

A Reuters poll of the top 10 oil-tracking analysts and organizations estimates that oil demand will rise by 1.3 million barrels per day (bpd) in 2010 to 85.9 million bpd. On the flip side, supply from outside of the Organization of Petroleum Exporting Countries (OPEC) and output of natural gas liquids from OPEC may only grow by 800,000 bpd.

Oil ETFs

Non-OPEC output is projected to average 51 million bpd in 2010 and OPEC output of natural gas liquids are expected to rise to 5.6 million bpd, up 20% since 2008. If OPEC maintains present quotas, crude oil inventories may drop by 150 million barrels in 2010.

Investment banks Goldman Sachs (NYSE: GS) and BofA-Merrill Lynch (NYSE: BAC) estimate oil demand will hit nearly 87 million bpd. Deutsche Bank (NYSE: DB) forecasts oil demand at 86 million bpd, noting that recovery will not be in energy-intensive or oil-intensive sectors. (Reasons why the oil run may not be over).

Oil demand growth is expected to be strongest in countries outside the Organization for Cooperation and Development (OECD), with China taking up a large piece demand. (Play the world’s hunger for energy).

For more information on oil, visit our oil category.

  • United States Oil (NYSEArca: USO): up 16.6% year-to-date

  • PowerShares DB Oil (NYSEArca: DBO): up 40.7% year-to-date

Max Chen contributed to this article.

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.

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