Black-Gold ETFs Keep Shining As Oil Soars

Wednesday May 28, 6:32 pm ET
Joanne Von Alroth

Wednesday's oil price rebound means lower gas prices won't be on the menu -- but investors with a piece of the oil services industry will see more profits on the table.

Many predicted the oil bubble's burst as oil prices dropped last week. The plunge was based on fears that U.S. demand is falling along with consumer confidence. The U.S. is the world's biggest consumer of oil.

Prices slumped further after the International Monetary Fund said continued higher oil prices will likely cause a recession. Increased fuel costs are pushing up prices for food and consumer goods; and merchants, fishermen and truckers in Europe protested soaring oil prices on Wednesday, saying their livelihoods are threatened.

London's Brent North Sea crude for July plunged from $135.14 a barrel May 22 to $128.17 on Tuesday.

Nigerian raids

But threats against Nigerian oil rigs pushed crude prices back up to $130.67 Wednesday afternoon. Nigerian rebels said they would attack oil installations in that country this weekend to mark President Umaru Yar'Adua's one-year anniversary.

The rebels -- the Movement for the Emancipation of the Niger Delta -- already hit another rig last weekend, slashing Nigeria's daily oil production by 130,000 barrels. Nigeria is a major U.S. oil supplier.

Yet even if high U.S. gasoline prices -- it's already past $4 a gallon in 11 states and the District of Columbia -- cut demand here, it's not about to slow in India and China. In fact, expect prices to continue to soar, analysts say.

Combined with OPEC's cut of oil production during Q1, the millions of barrels of oil a day needed to feed those growing economies is the biggest force behind the jump in energy prices, says Donald Dony, principal for financial consultants D.W. Dony and Associates.

Sharp Rise

Crude oil shot up 95% in the past year. If demand continues at the current rate, investors could expect oil prices to hit $200 a barrel or more by 2009, Dony says.

Exchange traded funds that track oil production have been a good way to benefit from the run-up.

The 63 oil and gas companies in the Dow Jones Wilshire 2500 Index pushed iShares DJ US Oil & Gas Exploration & Production (NYSEArca:IEO - News) up nearly 1% on Wednesday.

The fund's focus on exploration bodes well. Heavy hitters such as Occidental (NYSE:OXY - News), Anadarko (NYSE:APC - News) and Chesapeake Energy (NYSE:CHK - News) have all performed well in 2008.

U.S. Oil Fund (AMEX:USO - News), which tracks the price of west Texas light and intermediate sweet crude oil, is the biggest of the oil ETFs. It has risen 52% since it began its latest ascent Feb. 2

PowerShares Dynamic Oil Services Fund (AMEX:PXJ - News) bounced 2% in the past two days. The fund tracks the performance of oil and gas equipment, services and drilling companies on the Dynamic Oil and Gas Services Intellidex.