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How to Profit From Record US Oil Production


Two ETFs and an inverse ETN to take advantage of rising crude production.

Since the 2008 recession, US oil production has come roaring back. As 2013 opened, the United States topped seven million barrels per day in production for the first time in nearly 20 years. This is largely thanks to developments in technologies, like fracking, as well as more pipelines distributing the energy resource around the nation. Experts now predict that the United States will top Saudi Arabia's oil production by 2020. That would make the United States both the largest producer and consumer of this fossil fuel in the world.

Surging Production

The Energy Information Administration (EIA) expects crude oil production "to rise to 7.3 million barrels per day in 2013. That's 300,000 more than its December forecast, and 900,000 barrels per day more than what was produced in 2012. It also expects 2014 production to increase to 7.9 million barrels, the highest since 1988. That is up from a low of 5 million barrels in 2008." The organization also noted that imports have seen a slight decline, suggesting that the United States is becoming more self-sufficient when it comes to its energy needs.

The lofty numbers put forth by the EIA are backed by a number of expansions and developments set to some online soon. The Keystone XL expansion is still being heavily debated around the nation, but could be a significant development for the crude industry. The Seaway pipeline expansion is also expected to be complete within a few days, which will add a full 250,000 barrels in capacity. The anticipation of this move has narrowed the spreads for WTI futures.

With crude output set to rise, many investors are looking for a way to profit from the current trend. Below, we outline three ways investors can take advantage of surging production in crude oil.
  1. Energy Select Sector SPDR (NYSEARCA:XLE): With over $7.5 billion in assets, XLE measures the biggest and most liquid oil producers domiciled in the United States. Top holdings include bellwethers like Exxon Mobil (NYSE:XOM), Chevron (NYSE:CVX), and Halliburton (NYSE:HAL). This ETF will be able to take advantage of rising production while paying out a dividend yield of 1.78%.
  2. Market Vectors Unconventional Oil & Gas ETF (NYSEARCA:FRAK): One of the most unique ETF launches in the past few years, FRAK invests in companies that fall under the umbrella of unconventional oil and gas. This will most often refer to those that use fracking for production and output. The fund debuted in early 2012 and charges 54 basis points for investment.
  3. 3x Inverse Crude ETN (NYSEARCA:DWTI): This ETN -300% leveraged fund is only meant for active traders who have a firm grasp on the risks involved. With production set to soar in the coming years, crude prices are likely to face some downward pressure in the coming year. DWTI will allow traders to make a short-term profit if crude prices take a dip in the coming months.
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Editor's note: This article by Jared Cumans was originally published on Commodity HQ.
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