Crude Oil is getting hammered this week due to continuing rising inventories despite OPEC's cut backs. The NYMEX storage facility in Cushing, OK is almost at full capacity with 35 million barrels.
While demand has fallen over the past 6 months, crude at this price is unsustainable and will lead to price spikes in the near future. My concern is that companies are cutting back on exploration projects and laying off workers needed to produce. As Oil prices fall further it becomes extremely uneconomical to produce so production shuts down even more and inventories will eventually start to diminish. The problem truly arises when demand starts to creep back up. Even a small increase in demand will send the price higher very quickly. It will take alot longer to get supplies back online than it did to shut it down.
In order to play this scenario I'm invested in DXO, an oil etf that plays on the front months of crude contracts. It's trading in the mid 2.50's right now, and I'm accumulating anywhere below 2.45. The ETF is designed to double the percentage moves of crude oil prices. When oil hit $147 it was trading in the 28.00 to 29.00 range.
If crude moves like I think it will, this ETF will move. When that will happen is anyones guess, but it will happen.
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