Why Oil ETFs Are Stirring from Their Slumber

November 17th at 11:00am by Tom Lydon

ETF oilDespite 2009 being the first year since 1981 that global energy use fell, the future of crude oil exchange traded funds (ETFs) may look promising as the industry sees a flurry of renewed activity.

According to this year’s 2009 volume of the International Energy Agency’s (IEA) World Energy Outlook, the recession and financial crisis provided us a small respite from our insatiable fossil fuel demand and rising oil prices, remarks Dave Fessler for Investment U. However, the break in oil prices is forecast to end this year and a new growth pattern may start. The IEA projects that world consumption will grow 1% per year till 2030. (Oil ETFs are not over yet).

Possible shortfalls in exploration and production of oil as a result of this year’s low oil prices, coupled with increases in future demand could likely skyrocket oil prices in the future, says the IEA. (How to play world’s hunger for oil).

As stated in the IEA’s World Energy Outlook, “any prolonged investment downturn [in oil exploration and production] threatens to constrain capacity growth, eventually risking a shortfall in supply. This could lead to a renewed surge in prices a few years down the line, when demand is likely to be recovering and become a constraint on global economic growth.”

The oil industry is finding oil harder to come by and they need to drill deeper and deeper to locate oil pockets, which translates into  higher costs. Now that oil is hovering around $80 a barrel and projections put oil above $100 a barrel in the not-so-distant future, oil companies are only just beginning to turn back to exploration and production.

For more information on oil exploration, visit our oil & gas exploration category. For more information on investing with energy using ETFs, sign up for our new special report.

  • iShares Dow Jones U.S. Oil & Gas Exploration (NYSEArca: IEO): up 36.3% year-to-date

  • SPDR S&P Oil & Gas Exploration & Production (NYSEArca: XOP): up 36.5% year-to-date

  • PowerShares Dynamic Oil & Gas Services (NYSEArca: PXJ): up 56.5% year-to-date

ETF PXJ performance

  • United States Oil (NYSEArca: USO): up 21.7% year-to-date

  • PowerShares DB Oil (NYSEArca: DBO): up 44.6% 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.