“A new forecast from Bank of America (NYSE:BAC) Merrill Lynch is lowering the expected 2010 target oil demand growth from 2 million b/d to 1.5 million b/d. The bank also cut its crude oil price forecast by more than 15%, from $92 per barrel down all the way to $78 per barrel for the second half of the year.  The lowered forecasts will have an impact on major oil company shares and on several ETFs that track the crude oil market. The iPath S&P GSCI Crude Oil TR Index ETN (NYSE:OIL), the United States Oil Fund, LP ETF (NYSE:USO), and the Oil Services HOLDRs ETF (NYSE:OIH),” Paul Ausick Reports From 24/7 Wall Street.

Ausick goes on to say, “Declining demand is attributed to weak growth in Europe as consumers use less oil. The demand for oil is also a proxy for investment growth, which the bank is also targeting for a more “muted recovery.”  BofA sees the weakening of the euro versus the dollar as “a deflationary event” that will lead to a weaker dollar-based global economic recovery and lower prices for crude.”

“In the US, demand growth for crude oil is negative. The price spikes of 2008, when gasoline topped $4/gallon, has changed Americans’ habits. US drivers are driving fewer miles compared with the peak years of 2006-2007. As we noted yesterday, even previous recessions did not tamp down the number of miles driven in the US in the way the current slump has done,” Ausick Reports.

Bank of America also reported, “The rapidly weakening Euro is a deflationary event and will likely translate into a smaller-than-expected USD global economy and lower USD oil prices. Yet despite the much reduced likelihood of a robust upswing in global economic activity, we remain cautiously optimistic that the breadth of the recovery outside Southern Europe will prevent a double-dip scenario,” says a research note from Bank of America today.  Analysts to see support from oil prices coming from the developed world, with China in particular being a strong source of demand. ”

These oil based ETFs have already been under pressure as the market is looking for stable ground.  The price of oil is currently at $68.75/ barrel, much below the price forecast of $78/ barrel and may provide a buying opportunity for those who are still bullish on the commodity.

We have put together some further details on the three oil based ETFs below:

iPath S&P GSCI Crude Oil TR Index ETN (NYSE:OIL)

The investment is linked to the performance of the Goldman Sachs Crude Oil Return Index and reflects the returns that are potentially available through an unleveraged investment in the futures contacts comprising the index plus the Treasury Bill rate of interest that could be earned on funds committed to the trading of the underlying contracts. The index is derived from the West Texas Intermediate (WTI) crude oil futures contract traded on the New York Mercantile Exchange. The fund is nondiversified.

United States Oil Fund, LP ETF (NYSE:USO)

The United States Oil Fund, LP (“USO”) is a domestic exchange traded security designed to track the movements of light, sweet crude oil (“West Texas Intermediate”). USO issues units that may be purchased and sold on the NYSE Arca. The investment objective of USO is for the changes in percentage terms of its units’ net asset value (“NAV”) to reflect the changes in percentage terms of the spot price of light, sweet crude oil delivered to Cushing, Oklahoma, as measured by the changes in the price of the futures contract for light, sweet crude oil traded on the New York Mercantile Exchange (the “NYMEX”), less USO’s expenses.

Oil Services HOLDRs ETF (NYSE:OIH)

The investment seeks to diversify your investments in the oil service industry through a single, exchange-listed instrument representing your undivided beneficial ownership of the underlying securities. The investment holds shares of common stock issued by specified companies that, when initially selected, were involved in the oil service industry. Except when a reconstitution event, distribution of securities by an underlying issuer or other event occurs, the group of companies will not change. There are currently 18 companies included in the investment.

TOP 10 HOLDINGS ( 83.40% OF TOTAL ASSETS)

Company Symbol % Assets Transocean Ltd (Switzerland) Co (RIG) 16.15 Schlumberger N.V. Common Stock (SLB) 11.17 Halliburton Company Common Stoc (HAL) 10.69 Baker Hughes Incorporated Commo (BHI) 7.97 Diamond Offshore Drilling, Inc. (DO) 7.92 Noble Corporation N/A 7.38 National Oilwell Varco, Inc. Co (NOV) 6.21 Cameron Intl N/A 5.59 Smith International, Inc. Commo (SII) 5.49 BJ Services Company Common Stoc (BJS) 4.83

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OIH, OIL, USO