Oil demand will continue to rise in an expanding global economy. However, oil and energy exchange traded fund investors will have to factor in the changing supply and demand dynamics, along with the occasional geopolitical volatility.
“Supply risks in the Middle East and north Africa, not least in Iraq and Libya, remain extraordinarily high,” according to the International Energy Agency, reports Neil Hume for Financial Times. “Whether in crude of product markets, there is little room for compliance.”
After escalating violence in Iraq heightened supply concerns out of the Middle East, Brent crude touched a nine-month high above $115 per barrel in June. However, prices have since dipped on concerns over diminished demand from refineries in Europe and Asia, and Libyan production is expected to rise as rebels lift a blockade.
The United States Oil Fund (NYSEArca: USO), which tracks West Texas Intermediate futures, has declined 5.7% and the United States Brent Oil Fund (NYSEArca: BNO) has decreased 6.5% off the June 19 high.
If Middle East risks abate, the IEA believes oil will continue to experience improved fundamentals. Specifically, in developing, non-OECD countries, demand will rise an average 48.2 million barrels per day, compared to rich countries where demand will dip to 45.9 million barrels per day.
“Many non-OECD economies are entering a stage of development where rising household incomes and expanding industrial activity typically fuel relatively fast oil consumption growth,” according to an IEA report.