ETF Spotlight on iShares Dow Jones U.S. Oil & Gas Exploration Index (NYSEArca: IEO), part of a weekly series. Assets: $280 million

Holdings: The holdings in this fund consist of 60 companies involved in the exploration and production of oil and gas in the United States. Among the top components include: Chesapeake Energy (NYSE: CHK), Occidental Petroleum (NYSE: OXY) and Valero Energy (NYSE: VLO).

Forecasts about the world’s demand for energy are getting dire. We’ve got a big appetite now, but it’s about to get much, much bigger. The increased pressure could be good news for energy-related ETFs.

Worldwide energy demand is forecast to rise by about 40% between now and 2030. According to the International Energy Agency, the supply of oil will need to hit 130 million barrels per day by then, up from the 85 million barrels produced per day in 2008.

Over the last two weeks, crude oil prices have crept higher on hopes of a continued recovery and increasingly strong demand from China. With some analysts anticipating that crude will continue to rise, many investors have begun tilting their portfolios more heavily towards energy ETFs, hoping that higher margins will lead this sector to outperform the broad market.

Those looking to make an ETF play on the energy sector will be quickly overwhelmed with options. There are several funds that offer direct exposure to crude oil through futures contracts. In addition, there are a handful offering more targeted exposure to the energy industry, including funds focusing on oil equipment and services (IEZ) and exploration and production (IEO).

Through the first six months of the Obama administration, campaign promises were largely moved to the back burner while all available resources were devoted to an economy spiraling further and further into recession. Now that the country has lifted itself out of the recession and a recovery, albeit a fragile one, is underway, Washington has resumed battling over proposed social overhauls. While health care reform has been the primary focus (and the source of the most heated conflicts), climate change initiatives have been making steady progress as well.

That’s not to say that Congress is anywhere near a unanimous resolution on the matter. While most legislators are politically savvy enough to come out in favor of legislation protecting the environment, their ideas of the best way to do so vary wildly.

By Brad Zigler

Gasoline's been sucked out of storage according to the latest government figures. But, first things first ...

ETF Investors hope to achieve the right level of diversification.

Making sector-specific investments provides a chance to beat the market averages through focus. Buying ETF's lets you avoid some of the risks that come with individual stock purchases.

The markets and ETFs may be stabilizing, but many businesses may reveal third-quarter results that are a mere shadow of their prior-year levels.

For a majority of companies, third-quarter results could be below those of 2008, with per-share profits for the S&P 500 at a projected drop of 15.4%. More than 340 businesses could see a year-over-year drop in profits, according to Zacks. Projected revenues show median company sales may drop 7.2%, with more than 360 companies expected to experience a year-over-year drop in earnings.

Last week, BP PLC (BP) announced the discovery of a “giant” new oil field about 200 miles off the coast of Louisiana. The oil field is an an area that was once known as the “Dead Sea” in the oil industry, but has since witnessed several discoveries of massive reserves and become one of the most exciting oil exploration regions. Of the Tiber well, a BP spokesman noted, “we believe it’s the deepest well ever drilled by the oil and gas industry.”

The amount of oil that will ultimately be pulled from the Tiber well and other recent discoveries is extremely difficult to predict with any degree of accuracy, given the significant infrastructure requirements that must first be put in place. Each well requires miles of pipeline, floating facilities, and other expensive materials. And the drilling process in incredibly complex given the depths at which the oil is located.

For most investors, the typical rules of investing have been shattered. You may be astonished at the rise of stocks and ETFs since the market’s March 9 low. If you believe the market may be overextended, there are some ways to play it.

The stock market cycle typically runs ahead of the economic cycle and in the markets, sectors typically gain ground at uneven paces. Over this past uptrend, some sectors are performing as one would expect. Others, such as industrials and metals, are surprising investors. Those areas tend to recover in the latter stages, states Mitchell Corwin of Morningstar.

Where can you find some relative bargains when it comes to commodities? ETFs that hold the stocks of commodity producers could be one place to start.

The decline in the price-to-earnings ratio in such companies is the biggest of any group in the benchmark index, and the companies are 23% less expensive than their historical average, Michael Tsang and Lynn Thomasson for Bloomberg report.

Oversupply

Recent reductions in natural gas (NG) price may be related to continued strength in production capacity, specifically in unconventional shale gas fields. The Potential Gas Committee estimated U.S. reserves are 35% higher than just two years ago, thanks to new technology that has allowed producers to drill for gas in shale rock. The committee estimated the country's total natural gas resources at 2,074 trillion cubic feet, an increase of 542 trillion cubic from its last report.

After the market's recent pullback, most equity ETFs are trading below their 50-day moving averages. Below we highlight the key ETFs that are currently trading the furthest above and below their 50-days. As shown, the Financial Preferred ETF (PGF) is the furthest above its 50-day (+5.84%), followed by the Yen (FXY), Long-Term Bonds (BLV), and Biotech (BBH). The majority of ETFs trading above their 50-days are Fixed Income related, while the majority trading below are equity related. This is a much different picture from a few weeks ago when bonds were tanking and equities were rallying. The Natural Gas ETF (UNG) is trading the furthest below its 50-day at -16%. UNG is followed by Russia (RSX), Oil and Gas Exploration (XOP), and Emerging Markets Europe (GUR).

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“Words from the Wise” this week comes to you in a shortened format as I do not have access to my normal research resources while on the road in Europe (also see my post “Gone A.W.O.L. - to Slovenia and Switzerland“). Although very little commentary is provided, a full dose of excerpts from interesting news items and quotes from market commentators is included.

While investors’ hopes of an economic recovery might have got ahead of reality, the cartoonists continually reminded us of worrisome issues …

Oil and gas companies are fighting off new taxes on drilling and trying to keep the world off of renewable energy, in an effort to keep demand high for their products. The performance of related ETFs could ultimately be affected by both of these factors.

The oil and gas industry is just behind the drug companies in a fight against Federal agencies and their new taxes. The industry spent $44.5 million lobbying Congress and federal agencies in the first three months of this year, explains John Porretto for the Associated Press.

Many investors assume that the USO simply tracks the price of crude oil. It does not. Rather, it invests in near-month crude oil futures. When those futures expire, the fund uses the proceeds to buy new contracts, a process known as rollover. When oil markets are in contango - that is future prices are higher than spot prices - rollover becomes a nightmare for the USO, forcing it to waste money selling oil and buying it back again at a higher price.

It's hard to miss the long-term supply and demand pressures that will push oil prices higher. Almost every investor is aware that oil supply is getting harder to find, while oil demand from growing economies is rising. Furthermore, underinvestment in oil industry infrastructure leaves open the door for an energy shock if a global economic recovery sends demand through the roof and the oil industry has trouble delivering.

Some say that long-term dynamic is what's driven the price of oil up this spring. Benchmark crude closed Thursday at $68.81, its highest settle since early November. Others doubt that, however, and say that the recent spike has more to do with the declining value of the U.S. dollar than with the economics of oil. Barrels are priced in dollars, so as the value of dollars fall, the price per barrel will rise.

On the front page of the Financial Times yesterday (sorry, I gave up reading the Wall Street Journal when it went mass market) the headline was “Oil at $60 for first time in six months.”

How wonderful! I was long oil using commodity ETFs/ETNs since December when the price was in the 30s. Thus I expected the price to be up 50-80%. This is where I hit the empty well.

U.S. oil refineries are suffering from the simple outcome of supply versus demand, and numbers indicate that certain refineries will be forced to shut down soon, possibly leading to the streamlining of related ETFs.

Many analysts are making their picks as to which refineries will be the first to call it quits and how many may close, as oil and gasoline demand peaked around 2007. Many expansion projects at U.S. refineries are still under way. leaving the nation with more refining capacity than it needs, reports Susan Daker for The Wall Street Journal.