In spite of a drifting American economy, the rest of the planet is beginning to grow. Fueled by growth in emerging markets and Federal Reserve policy, commodity prices have taken off over the last year. Several analysts are pointing to another big year for commodities in 2011, with gains across a variety of sectors. As oil has risen past the $80 a barrel mark, OPEC's next year's forecast helps to support investment in the energy sector.
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The 12-member Organization of Petroleum Exporting Countries (OPEC) raised its 2011 forecast for global oil demand as industrial consumption in developed countries has started to recover. OPEC expects oil requirements to increase by 1.2 million barrels a day to 86.95 million barrels next year. This is an increase of nearly 120,000 barrels a day above last month's forecast. Oil demand has been steadily rising since the end of the global credit crisis, led by developing economies outside the Organization for Economic Cooperation and Development (OECD). Now, OECD economies have picked up the slack with OPEC reporting that "North America, Europe and the Pacific region have shown strength in oil consumption." Both South Korea and Germany have increased their demand exponentially as their export-based economies have boomed. OECD demand is estimated to be nearly 85.78 million barrels a day, an increase of about 190,000 barrels.
OPEC currently produces about 40% of the world's oil supply. However, IEA expects that percentage to rise to nearly 50% by 2035. Canada, India and Oman will help drive growth in non-OPEC member's output. Non-OPEC supply is estimated to increase by 360,000 barrels a day to 52.52 million barrels in 2011. Demand for the producer group's crude oil is estimated at 29.2 million barrels a day in 2011.
Ways to Play this Consumption
With energy analysts predicting that global oil demand will steadily increase throughout the next year, investors may want to take a serious look at the energy sector. Oil still has quite awhile before it reaches its record $150 a barrel price target and some professionals estimate that oil will hit the $300 mark sooner than we think. Adding a broad-based exchange-traded fund such as the popular Energy Select Sector SPDR (NYSE: XLE) makes sense as a portfolio play. However, it's not the only way to gain exposure.
With many mature oil fields showing signs of declining production, new technologies will need to be created in order to squeeze more barrels out of these wells. This task has been thrust towards the oil service industry. In addition, these companies provide all the pipes, drill bits and other requirements for traditional energy extraction. The SPDR S&P Oil & Gas Equipment & Services (NYSE: XES) follows 27 different oil service firms and is the easiest way to gain access to the sub-sector. BP's (NYSE: BP) recent "mishap" in the Gulf of Mexico helped underscore that new deeper offshore wells come with added risks and responsibilities. The service stocks will continue to thrive as new mandates focus on drilling safety.
As one of the major non-OPEC producers, Canada's production is on the rise. The Guggenheim Canadian Energy Income (NYSE: ENY) follows 26 different Canadian energy firms such as Suncor (NYSE: SU). The ETF yields a healthy 3.38%. The fund also functions as a way to play the difference in oil and natural gas prices. Holdings within the ETF shift toward oil when oil prices are high and conversely to natural gas when natural gas futures increase.
With some of the largest oil companies domiciled outside of the United States, adding an international component to an energy portfolio makes sense. The WisdomTree International Energy (NYSE: DKA) tracks 59 of the largest international energy firms such as France's Total SA (NYSE: TOT). Shares of the ETF yield nearly 3%.
OPEC's recent oil demand forecast highlights the need for investors to have an energy component in their portfolios. Steadily increasing demand across a variety of emerging and developed nations will only help to increase crude oil prices. Investments such as the iShares S&P Global Energy (NYSE: IXC) or any of the proceeding funds are good bets. (For related reading, take a look at 4 ETF Strategies For A Down Market.)
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