The Commodity Investor: 2 ETFs For Falling Gas Prices

December 01, 2014

Inverse oil ETFs benefit from falling prices.


The message from last week’s emergency-session meeting in Vienna of the Organization of Petroleum Exporting Countries was unequivocal: We are ready to live in a world of lower-priced oil.

The decision within OPEC was not unanimous, but it was indisputable. OPEC is divided into three categories: the Saudis, the low-price producers, and everyone else.

The Saudis hold a special place within the organization and are viewed as “first among equals”; this is for several reasons.

First, Saudi Arabia is one of the founders of OPEC; second, it is the group’s most influential member in terms of production (Saudi is responsible for 33 percent of the cartel’s output, making it by far the biggest producer); third, the country also has the biggest “spare capacity,” meaning it can quickly ramp up or bring down total numbers of barrels produced on a daily basis; fourth, it holds the biggest reserves; and finally, it has significant influence over the biggest-consuming countries, such as the United States and China.

Discord Within OPEC

All in all, no other country dominates OPEC as does Saudi Arabia. OPEC is made up of 12 different countries, with each country having its own level of production, quality of crude and commercial and geopolitical interests to protect. During the November 2014 session, we saw a tremendous amount of discord among and between member countries, and for very good reason.

For the first time in almost five years, and for only the second time in almost 15 years, oil prices have been in free fall. Brent crude has been trading in the $100 per barrel range for most of the year. Now, it is down more than 30 percent, with no end in sight. A large supply glut has meant that customers have been asking for lower and lower prices for each barrel purchased. And producers must oblige because the supply is plentiful.

In OPEC’s official statement, the organization made reference to “marginal producers.” While not identified by name, the market knows exactly who these “marginal producers” are: North American shale producers. While each member within OPEC clearly recognizes the threat of American shale, each member had different suggestions for how to deal with this threat.


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