Where Are Energy ETFs Headed?

The Energy Information Administration (EIA) recently released its short-term energy outlook for a variety of energy sources. Their forecasts could impact a wide range of energy-focused ETFs.

Remember, though, that while forecasts are informative, unforeseen events could cause the reality to play out differently. While you keep these predictions in mind, have an entry and exit strategy if you’re thinking of investing in energy ETFs.

• U.S. Crude Oil. Crude oil prices are going to remain volatile, while the WTI spot price is projected to rise slowly as economic conditions improve, to an average of about $72 per barrel in 2010. Expect crude prices to hover around $70 per barrel for the fourth quarter. United States Oil (USO) is up 15.7% year-to-date

• Gasoline. The average price for regular-grade gasoline, which reached a summer peak of $2.69 per gallon in EIA’s June 22 weekly survey, fell by more than 20 cents per gallon in the four weeks following the drop in crude oil prices. Now, however, they’re bouncing back. EIA expects the annual average regular-grade gasoline retail price in 2009 to be $2.34 per gallon. Higher projected crude oil prices next year are expected to increase the average price to $2.66 per gallon in 2010. United States Gasoline (UGA) is up 82.2% year-to-date

• Natural Gas. Natural gas inventories are expected to set a new record high at the end of this year’s injection season (Oct. 31). Natural gas production is projected to remain flat this year, then fall by 2.8% in 2010. United States Natural Gas (UNG) is down 49.6% year-to-date

• Coal. Coal consumption in the electric power sector has declined 6.4%, but it’s expected to climb 1.3% in 2010. Coal production is projected to drop off by 8% this year, thanks to lower consumption, fewer exports and higher inventories. That trend is predicted to continue into 2010. Market Vectors Coal (KOL) is up 94.4% year-to-date

• Electricity Total retail sales of electricity are projected to decline by 2.7% throughout the United States during 2009. Sales in the industrial sector are projected to decrease by about 10% this year because of the weak economy. For 2010, a 0.8% rise is expected. iShares Dow Jones U.S. Utility Index (IDU) up 5.7% year-to-date

Comments

[Joseph L. S...:]

Natural gas is unlikely to remain depressed. As the winter season cranks up in 12 weeks or so, utilities don't just produce natural gas-generated heat. As the days grow longer, lights go on earlier in the day, people travel less, spend more time on their computers and watching TV, and cook more at home.

This is a seasonal play that hasn't changed in 50 years, yet the financial media always project declines or rises -- in any commodity,trend or stock -- as if they were linear. The market, however, is cyclical, not linear...

Aug 26 10:08 AM

[Gadz:]

If the winter is as cold as the summer is hot sales will explode!

Aug 26 12:31 PM

[kjangelo:]

So, what am I missing? Your title is wrong. It should say "This is what ETFs have done this year" What was your purpose?

Aug 27 12:28 PM