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
  

• 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.

Worldwide energy demand is forecast to rise by about 40% between now and 2030. According to the International Energy Agency, the supply of oil will need to hit 130 million barrels per day by then, up from the 85 million barrels produced per day in 2008.

Polya Lesova for MarketWatch reports that energy demand will be vastly different should countries limit the long-term concentration of greenhouse gases in the atmosphere to 450 parts per million of carbon-dioxide equivalent. If that’s the case, energy demand would grow by 20% in that time frame.

Spencer Swartz for The Wall Street Journal reports that a new global climate deal limiting the carbon emissions could cut oil consumption in years ahead and tap into alternative energy uses. This would cut global crude demand by about 4 million barrels per day. (Why oil’s run may not be over with).

Meanwhile, crude oil is moving as Hurricane Ida weakens and a  stronger dollar reduces the appeal of commodities to investors looking for an inflation hedge. Severe storm damage is not expected and the dollar is up lightly against other major currencies. (Why oil ETFs lag oil prices).

• United States Oil (NYSEArca: USO): up 22.4% year-to-date

• PowerShares DB Oil (NYSEArca: DBO): up 44.4% year-to-date

• iShares Dow Jones U.S. Oil & Gas Exploration (NYSEArca: IEO): up 37.8% year-to-date

For more stories about oil, visit our oil category.

In the last month, United States Oil Fund (NYSEArca: USO) has been lagging oil prices slightly: it’s up 10.4% in the last month, compared to about 10.7% for oil prices. PowerShares DB Oil (NYSEArca: DBO) is up about 10.2% in the same time period. (The four types of commodity ETFs).

Contango, when the near-month contracts cost less than the contracts further out, can negatively impact futures-based ETFs because it makes buying new contracts more expensive. This is a situation the oil funds warn of in their prospectuses. The opposite of contango, backwardation, can benefit these funds. The markets spent about half of last year in backwardation.

Since about mid-2008, the oil markets have been in contago. Although they’re still there, the front-month contract is trading about 65 cents below the second month.

United States 12-Month Oil (NYSEArca: USL) can be an option when contango is in play. The fund invests in futures contracts over all 12 months instead of the near-month ones. USL is up 10% in the last month.

For more stories about commodity ETFs, visit our commodity ETF category.

• Low interest rates. The great increase in global money supply has fueled oil-intensive growth and consequently, pushed up oil crude prices, comments Martin Hutchinson for Money Morning. Many countries have kept interest rates low, and they don’t expect to change it anytime soon. (More money being reinvested into commodities).

• More cars. China and India’s burgeoning auto industries are producing an expected 11 million and 2.5 million cars, respectively, while Brazil’s auto sales surged 20% in September. This translates into increased demand for oil.

• Weak U.S. dollar. The price of oil and the dollar historically have an inverse correlation; oil is priced in dollars, so as it weakens, oil becomes cheaper for foreigners. As the U.S. government takes on more debt, investors are predicting a further depreciation of the dollar. (Oil trading without the dollar)

• The economy. Some believe the worst is over, and oil will soon benefit from a more active economy with higher energy consumption, remarks Dave Mock for The Motley Fool.

• Scarcity. Oil bulls argue about a “peak oil,” where the peak of global oil production will finally be seen. Oil, like other commodities, is a finite resource.

There are several ways to play oil. Some ETFs hold shares of major oil companies, such as Exxon Mobil (NYSE: XOM) and Chevron (NYSE: CVX). These companies range from oil exploration, to refining, to production. Examples include:

• PowerShares Dynamic Energy (NYSEArca: PXI): up 32% year-to-date

• SPDR S&P Oil & Gas Exploration & Production (NYSEArca: XOP): up 32.5% year-to-date

There are also oil ETFs that hold futures contracts. ETFs that hold futures give investors the chance to capitalize on oil prices without having to worry about rolling over contracts or taking delivery. For more information on oil, visit our oil category.

• United States Oil (NYSEArca: USO): up 19.2% year-to-date

• PowerShares DB Oil (NYSEArca: DBO): up 40.2% year-to-date

Max Chen contributed to this article.

Yesterday, JPMorgan Chase (NYSE: JPM) set a high bar for earnings, but Goldman Sachs (NYSE: GS) and Citigroup (NYSE: C) failed to reach it when they announced their third-quarter results this morning. Goldman Sachs reported $3.19 billion in trading profits that beat expectations, but the stock dropped on declines in investment banking revenues. Citigroup reported a smaller loss than expected, but credit losses are high, report Sara Lepro and Tim Paradis for the Associated Press.

• Financial Select Sector SPDR (NYSEArca: XLF) is down about 1.25% this morning

Two positive signs for the U.S. economy emerged this morning: new jobless claims made a surprise drop to 514,000 and inflation stayed low in September. (How to play inflation, deflation and stagflation with ETFs).

The drop in the number of newly laid-off workers isn’t enough to signal that companies are in hiring mode, but it’s a sign that they’re at least slashing fewer workers, reports Christopher S. Rugaber for the Associated Press. It’s the fifth decline in six weeks.

Consumer prices rose 0.2% in September, which was in line with what analysts expected. Excluding energy and food, prices still rose 0.2%. (Read about the holiday retail sales outlook here).

Oil shot above $76 a barrel as the U.S. Dollar continues to weaken. The spike came after a report showed that fuel inventories declined by 5.2 million barrels. A drop of 700,000 had been anticipated. (Where gas prices may be headed).

• PowerShares DB Oil (NYSEArca: DBO) is up nearly 2.5% this morning

Read more about oil by visiting our oil category.

Tony Daltorio for Investment U says that when it comes to coverage of oil prices, it appears that  the only time it really comes up is when the financial media mention either demand destruction in the United States or an inventory buildup of fuel in the United States.

This discounts the demand for oil on a worldwide stage, as China and other emerging markets  have quite an appetite for oil even as demand in the United States stays flat.

The media also has a tendency to ignore the largest part of the supply/demand equation when it comes to oil: The supply of oil is actually dropping three times faster than the demand for it is building. This is a major point that investors would be able to profit from, and make investment decisions based upon this.

How can one play oil with ETFs? There are several options, which range from ETFs that hold the stocks of companies involved in oil production, ETFs that hold a broad range of commodities and ETFs that hold oil futures contracts. Determine your risk tolerance, then take a position only when a fund goes above its 200-day moving average. Have a stop-loss in place to protect yourself on the downside.

ETFs for investors interested in oil:

• United States Oil (NYSEArca: USO): up 12.2% year-to-date

• PowerShares DB Oil (NYSEArca: DBO): up 32.3% year-to-date

• iShares Dow Jones US Oil & Gas Exploration (NYSEArca: IEO): up 33.8% year-to-date

For more stories about oil, visit our oil category.

The “peak oil theory” states that the world will be in need of new energy sources within the next decade or so, but what does this mean for oil ETFs?

MoneyEnergy has some startling facts about oil:

• U.S. oil production peaked at 10 million barrels a day…way back in 1971
• The discovery of new oil fields (that’s worldwide) hit its peak in 1966
• World oil production has barely grown since 2005
• Oil prices hit a record high in 2008, even though Americans had driven 15 billion miles less than a year earlier

Oil is a limited resource and is only going to become more scarce and more expensive in the future, which could wind up being to the benefit of oil-focused ETFs. It could also be to the benefit of the alternative energy industry as Americans look for new sources to power their industries.

In some areas, the situation is even more dire. Saudi Arabia is not only running out of oil – it’s running out of water, too. MoneyEnergy reports that the country has a few plans:

• Invest in the agricultural sectors of Thailand, Pakistan and Sudan to secure its future food supply
• Use their  oil fields to turn salt water into drinking water through desalination; however, this method is questionable, since it burns tons of oil in the process

There is no escaping the impact of declining resources whether you are in Saudi Arabia or the United States.

• United States Oil (USO): up 8.9% year-to-date



• United States 12 Month Oil (USL): up 26% year-to-date



• PowerShares DB Oil (DBO): up 33.2% year-to-date

For more stories about oil, visit our oil category.

Trading oil futures is not like trading stocks or bonds, and generally requires experience and expertise.  Ari J. Officer of Time Magazine outlines three things that are needed to be an oil speculator:

• You need money. The New York Mercantile Exchange requires a minimum of $10,000 in a margin account as collateral, unless one is a member of the exchange.  Why this magic number? Aa single contract of crude holds 1,000 barrels, so a $10 price movement can either add or subtract $10,000 from one’s account.

• You need to find a broker and clearinghouse to connect you with the markets to trade, as well as to act as insurance to the exchange that you will cover anything you lose.

• You need a monitor that operates 24/7 to track the oil markets.  Keep in mind, that you’re not trading the physical oil, you’re trading a contract obligation to either buy or sell it at a specified delivery date in the future.

Boy, oh, boy. It should be apparent by now that ETFs simplify this process a great deal. There’s no need for minimums, monitors and it’s far cheaper to access the oil market via an ETF. It’s so simple, in fact, that it’s what has led the Commodity Futures Trading Commission (CFTC) to consider regulations and limitations in order to prevent speculators from driving prices up and down.

The providers of these funds have spoken out in defense of them, saying that the claims that they were driving prices “self-serving statistical gibberish.” United States Commodity Funds Chief Investment Officer John Hyland says that such caps imposed by the government would ultimately lower the liquidity his funds deliver to the futures markets, because the existing funds would need to be broken off into smaller funds.

• United States Oil Fund (USO): up 9.7% year-to-date

• United States 12 Month Oil (USL): up 27.1% year-to-date

• PowerShares DB Oil Fund (DBO): up 34.4% year-to-date

For more stories on oil, visit our oil category.

Kevin Grewal contributed to this article.

What’s behind the wild gyrations in oil prices? Market watchers believe it is the investors themselves, the so-called speculators. But are speculators actually market manipulators? Dan Rice, manager of the Blackrock Energy and Resources Fund on Yahoo Finance says speculators do play a big role in the market, and that speculation gives the markets liquidity.

L. Gordon Crovitz for The Wall Street Journal reports in an opinion piece that short sellers last year were blamed for their trades warning about the credit crisis, and commodities traders are now accused of causing higher oil prices. The fact remains that even when traders are proven right, they still get blamed for bringing the bad news.

A recent proposal aimed at one group of speculators could prove that speculators of all kinds deserve our thanks. If that seems too far out, at least they are rewarded for bringing valuable information to markets.

Protect yourself from wild swings in the markets with a trend following discipline and an exit strategy.

• United States Oil (USO): up 1.4% year-to-date

• PowerShares DB Oil (DBO): up 22.4% year-to-date

For more stories about oil, visit our commodity category.

The current surge in commodity prices maybe a result of strong purchasing by China, but most of the buying has been to build stockpiles. This kind of buying isn’t seen as sustainable in the long run, reports Keith Bradsher for The New York Times.

Commodities and shipping executives note China’s recent purchases of commodities that include iron, aluminum, copper, nickel, tin, zinc, crude oil, canola and soybeans. China is storing these commodities for several reasons: in anticipation of higher prices in annual contracts, for strategic reasons or to insulate domestic producers from any potential falling global prices.

J.P. Morgan (JPM) calculates that China’s iron ore imports were 33% higher in April year-over-year. Crude oil imports were up almost 14%, aluminum oxide imports were up 16%, refined copper imports jumped 148% and coal imports climbed 168%.

There are some economists that are bullish on commodities, citing the eventual recovery of the U.S. and European economies, while others think this is just the beginning of another commodity bubble. Whatever it is, watch the trend lines for signals.

• PowerShares DB Base Metals (DBB): up 30.3% year-to-date

• PowerShares DB Oil (DBO): up 34.8% year-to-date

• Market Vectors Coal ETF (KOL): up 71.9% year-to-date

For more related stories, visit China or Commodity ETFs categories.

Max Chen contributed to this article.