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.

IN PICTURES: Baby Buffett Portfolio: His 6 Best Long-Term Picks

Rising Demand
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%.

Bottom Line
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.)

Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!

Related Articles
  1. Mutual Funds & ETFs

    Top Three Transportation ETFs

    These three transportation funds attract the majority of sector volume.
  2. Stock Analysis

    5 Cheap Dividend Stocks for a Bear Market

    Here are five stocks that pay safe dividends and should be at least somewhat resilient to a bear market.
  3. Investing Basics

    Tops Tips for Trading ETFs

    A look at two different trading strategies for ETFs - one for investors and the other for active traders.
  4. Investing

    How to Win More by Losing Less in Today’s Markets

    The further you fall, the harder it is to climb back up. It’s a universal truth that is painfully apparent in the investing world.
  5. Fundamental Analysis

    Use Options Data To Predict Stock Market Direction

    Options market trading data can provide important insights about the direction of stocks and the overall market. Here’s how to track it.
  6. Stock Analysis

    2 Oil Stocks to Buy Right Now (PSX,TSO)

    Can these two oil stocks buck the trend?
  7. Investing News

    What Alcoa’s (AA) Breakup Means for Investors

    Alcoa plans to split into two companies. Is this a bullish catalyst for investors?
  8. Mutual Funds & ETFs

    Top 4 Investment Grade Corporate Bonds ETFs

    Discover detailed analysis and information about some of the top exchange-traded funds (ETFs) that offer exposure to the investment-grade corporate bond market.
  9. Stock Analysis

    Top 3 Stocks for the Coming Holiday Season

    If you want to buck the bear market trend by going long on consumer stocks, these three might be your best bets.
  10. Investing News

    Could a Rate Hike Send Stocks Higher?

    A rate hike would certainly alter the investment scene, but would it be for the better or worse?
  1. Can mutual funds invest in IPOs?

    Mutual funds can invest in initial public offerings (IPOS). However, most mutual funds have bylaws that prevent them from ... Read Full Answer >>
  2. How do dividends affect retained earnings?

    When a company issues a cash dividend to its shareholders, the retained earnings listed on the balance sheet are reduced ... Read Full Answer >>
  3. What is the difference between called-up share capital and paid-up share capital?

    The difference between called-up share capital and paid-up share capital is investors have already paid in full for paid-up ... Read Full Answer >>
  4. Why would a corporation issue convertible bonds?

    A convertible bond represents a hybrid security that has bond and equity features; this type of bond allows the conversion ... Read Full Answer >>
  5. Does index trading increase market vulnerability?

    The rise of index trading may increase the overall vulnerability of the stock market due to increased correlations between ... Read Full Answer >>
  6. What does a high turnover ratio signify for an investment fund?

    If an investment fund has a high turnover ratio, it indicates it replaces most or all of its holdings over a one-year period. ... Read Full Answer >>

You May Also Like

Trading Center
You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!