With the largest single day drop in gold prices dominating the
headlines, many consumers have overlooked crude oil's significant
fall in prices as of late. Even without the decline earlier this
week, crude has been relatively weak as of late, with few expecting
this to change soon. It seems that the pressure keeping prices at
bay is only expected to rise in the coming months and years as this
commodity may be slowly losing its dominance.
Surging Production and Competition
The increase in oil production in countries outside of OPEC has
thrown a wrench into the global market place. Besides Venezuela,
which has been selling its oil outside of OPEC for a long time now,
Russia, Canada, and the US have all increased production of crude;
the IMF predict an increase of 1 million barrels per day in 2013.
This actually exceeds the demand for oil, putting pressure on
prices and driving them down.
Advances in hydraulic fracturing (fracking) as well as horizontal
drilling have helped unlock huge reserves of natural gas around the
world and have been especially beneficial to countries that once
relied on outside energy. This trend towards natural gas has
started to eat away at crude's dominance in the energy market and
is only expected to grow.
Posing a deeper threat in the short term, oil tanked earlier this
week after China's disappointing GDP data worried markets, sending
crude prices to a 2013 low. Many analysts are quick to note that
April and May have always been down seasons for oil in China, and
that they expect to see demand increase once again in the summer.
Still, the threat of an economic slowdown in China will continue to
threaten crude prices, as China is the second-largest consumer
behind the US. Any news of a slowing economy or curtailing demand
could deal a major blow to this commodity.
Profiting From Falling Crude
Should crude prices continue to fall, there are a number of ways
that investors can turn a profit.
3x Inverse Crude ETN
(NYSEARCA:DWTI): Composed entirely of WTI crude oil futures
contracts, this ETF adds a -300% leverage to oil's daily
movements. With a year-to-date return of 11.8%, DWTI has so far
enjoyed a a strong start to 2013.
United States Oil Fund
(NYSEARCA:USO): Tracking the changes in the price of light, sweet
crude, this is one of the most popular oil
available. Investors can use options to bet on a dip in this fund
during poor times for oil.
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Editor's note: This article by Carolyn Pairitz was originally
ISE Revere Natural Gas Index Fund
(NYSEARCA:FCG): Betting on natural gas rising could be a
profitable way to play if the fossil fuel continues to eat away
at crude oil's market share.