Oil Exploration ETFs Could Jump on Round of Spending

December 31st at 11:00am by Tom Lydon

Unfazed by the ecological disaster in the Gulf, oil companies will throw more money into expanding operations in the sea. Energy companies and related exchange traded funds (ETFs) could benefit from the higher sustained oil prices.

According to a new survey of oil companies, spending for new wells, platforms and drilling rigs will increase 11% to around $490 billion next year on deep-water drilling, reports Stephen Beard for MarketPlace. Companies are banking on higher crude prices in the future to make up for the difference. [Coming to America with Infrastructure ETFs.]

Dr. Clifford Jones, an energy expert at Aberdeen University, also notes that “oil production and oil exploration won’t stop” because “the world needs 80 million barrels of oil a day. And that state of affairs can’t be changed in response to one event, however tragic.”

VOA News says companies are expected to spend more because untapped oil and natural gas can only be found in harder to reach areas and today’s higher oil prices will be sustainable.

Crude oil prices are hovering below $90 a barrel and some analysts opine that the price could shoot above $100 next year. Additionally, the 12-member Organization of the Petroleum Exporting Countries have not showed signs of raising oil supplies.

If you want to bypass futures-based ETFs such as PowerShares DB Oil (NYSEArca: DBO) and United States Oil (NYSEArca: USO) and head straight to equities, oil explorers have been doing well this year as a result of higher oil prices.

iShares Dow Jones U.S. Oil Equipment & Services Index Fund (NYAR: IEZ) is a standout: it’s up 51% in the last six months. PowerShares Dynamic Oil Services (NYSEArca: PXJ) and SPDR S&P Oil & Gas Equipment & Services (NYSEArca: XES) have also done well, gaining 50.8% and 46.8%, respectively in the last six months. You can find a complete list of the the oil explorers in the ETF Analyzer.

Despite solid performance in 2010, most oil production ETFs are still well off their highs by as much as 50%. Time to go bargain shopping!

For more information on the oil industry, visit our oil & gas exploration category.

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.