Shale Boom Resonates with Energy ETFs
May 16th at 10:00am by Tom Lydon
Oil and gas exploration and production shares and exchange traded funds have been rallying as investors bet on a shale boom. Recent data released from the International Energy Agency is supporting the profitability of major oil service companies.
“In its ‘Medium-Term Oil Market Report’ released Tuesday, the IEA said the production onslaught will have impact on the oil market over the next five years as much as swelling Chinese demand did over the past 15 years. What’s more, it will force companies to change how they transport, store and refine oil in addition to their investment strategies,” Trang Ho wrote for Investor’s Business Daily. [Energy Sector ETFs Heat Up]
The shale boom will have a positive impact upon major oil service companies and independent service operators. Well-known companies such as Halliburton (NYSE: HAL), Schlumberger (NYSE: SLB) and Baker Hughs (NYSE: BHI) are in line to profit, backed up with billion dollar research and development budgets, noted John Graves, Ventura, CA asset manager, in a recent write up.
Global energy markets are set to be impacted as the “supply shock” stemming from the North American shale oil boom will resonate. North American oil supply is set to grow by 3.9 million barrels per day, as emerging economies are on track to exceed oil product consumption by developed markets this year. Also, according to the IEA report, global demand for oil will rise 8% from 2012 at 89.78 million barrels per day, through 2018 at 96.68 million barrels per day, assuming global economic growth will rise 3%-4.5% annually. [Is it Time to Get Into Energy ETFs?]
Trang Ho for Investor’s Business Daily reports that the iShares S&P North American Natural Resources (NYSEArca: IGE), Energy Select Sector SPDR (NYSEArca: XLE) and the iShares Dow Jones US Energy (NYSEArca: IYE) have all gained on the recent news. They have all up-ticked 0.95% to 1.42% in one day. [ETF Chart of the Day: Natural Resources]
Investors can expect oil prices to slump as a surplus onslaught of the commodity will flood the market. Oil prices are predicted to fall 5.5% between 2013 and 2018. [ETFs for Lower Oil Prices]
“Although shale oil development outside North America may not be a large-scale reality during the report’s five-year time frame, the technologies responsible for the boom will increase production from mature, conventional fields – causing companies to reconsider investments in higher-risk areas,” the IEA report said.
Tisha Guerrero 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.