Why Oil ETFs Are Rising

August 5th at 11:00am by Tom Lydon

U.S. energy demand may be lukewarm, but demand in emerging markets is handily making up for it while driving oil exchange traded funds (ETFs) up. Unsurprisingly, pricier barrels of oil also means pricier gas prices at our local pumps.

June consumer spending remained flat – purchases only inched up 1.6% in the second quarter, comments Ian Wyatt for Wyatt Investment Research. Yet, oil prices are rising. What gives?

Emerging markets are a contributing factor, apparently. But that’s not it.

  • In 2009, despite a global recession, China ramped up imports of oil to satiate its economy. If that’s what they do in recession, you can only imagine what’s happening in better times. When the United States and other developed markets get going again, energy demand is one area we’ll be seeing that reflected. [Mixed Economic Reports Result in Mixed ETFs.]
  • Further adding to rising prices is falling inventories: The Energy Department reported that U.S. commercial oil inventories diminished to 358 million barrels as of last week.

Charles Maxwell, aka the “Dean of Energy Analysts,” predicts that oil will hit $300 per barrel by 2020, writes Gary Gordon for ETF Expert. As emerging markets dramatically increase demand for basic resources, high energy prices may very well be the norm.

AAA stated that the national average per gallon of regular unleaded currently stands at $2.747 a gallon, reports Sandy Shore for The Associated Press. Drivers are dishing out 3 cents more than two weeks ago and 18.6 cents more year-over-year. Crude for September delivery hovers around $82 a barrel.

The Energy Information Administration said that the biggest decline in gas prices was experienced in the Midwest, but people in the Gulf Coast pay the cheapest gas on average while drivers on the West Coast pay an average of more than $3, writes Sandy Shore for The Associated Press.

For more information on oil, visit our oil category. According to our ETF Analyzer, there are 17 funds to give you exposure to oil. They come in two varieties: equities and futures contracts. Before diving in, decide which type is right for you by reading up on the effects of contango.

  • iShares Dow Jones U.S. Energy Sector (NYSEArca: IYE)
  • United States Gasoline (NYSEArca: UGA)
  • PowerShares DB Oil (NYSEArca: DBO)
  • United States Oil Fund (NYSEArca: USO)

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.