Energy ETFs: Oil Industry Expands Its Horizons
Oil and related exchange traded funds (ETFs) have experienced huge gains off its last year’s low, and energy companies have pocketed most of the change. However, the oil industry is expanding its options into other energy fields as it anticipates the eventual depletion of oil reserves.
Big western oil companies are trying to sustain reserves by expanding through acquisitions and investment, according to The Economist. For instance, Exxon Mobil (NYSE:XOM) estimated that exploration and capital spending hit $27.1 billion in 2009, or 4% higher than in 2008. The company also expects to continue spending around $25 billion to $30 billion a year over the next five years for the same purpose.
- iShares Dow Jones U.S. Oil and Gas Exploration (IEO)
- SPDR S&P Oil & Gas Exploration & Production (XOP)
- PowerShares Dynamic Oil & Gas Services (PXJ)
- Energy Select Sector SPDR (XLE)
Western oil companies are finding fewer new big oil fields that are easy to reach and cheap to exploit. Consequently, firms are being forced to look for other areas of growth, which include hard-to-reach areas like deep offshore, tar sand and shale bed reserves.
- United States Oil (USO)
- PowerShares DB Oil (DBO)
Additionally, companies are branching out to other energy reserves. France’s Total is looking into nuclear-energy and Royal Dutch Shell (RDS-B) has announced a $12 billion joint-venture with Cosan, Brazilian producer of ethanol. Exxon and Shell are also both investing in “second generation” biofuels, but it may take years to develop.
- Market Vectors Nuclear Energy (NLR)
Oil companies have also put a lot of money into natural gas. Around 40% of Shell’s total production is in the form of gas. With the expected growth in th global market for gas by half by 2030, gas is becoming more and more important for power generation and heating.
- United States Natural Gas (UNG)
- United States 12-Month Natural Gas (UNL)
- First Trust Natural Gas Fund (FCG)
Meanwhile, oil’s future is uncertain. While the price is more than double what it was at its lowest point last year, the rally has been driven primarily by optimism and earnings reports. There’s a battle coming, says Kevin Grewal for The Street. Absolute inventory volumes of crude oil are expected to stay well above the levels they were at one year ago. If production levels stay the same or increase, we could be looking at a global surplus.