Why Oil Is Plunging (and 2 Ways to Profit)

Oil prices were already down 50% year to date on Friday. They plunged another 25% yesterday.

Fears of the COVID-19 coronavirus spreading means that more people are staying home.

And as fewer people travel, there's less demand for oil - which causes the price to fall.

One way the leading oil-producing countries fight falling demand is by slowing production.

If they're able to decrease the supply of oil as much as the demand for it, the price should stabilize.

That's exactly why OPEC and Russia met last week. They planned to make the biggest oil production cut since 2008.

Unfortunately, the two sides couldn't come to an agreement.

Russia, the world's third largest oil producer, did not want to limit its oil output, because any meaningful cut would severely hurt the country's bottom line. After all, oil exports account for approximately 30% of Russia's GDP.

So over the weekend, Saudi Arabia - the world's second largest oil producer - officially launched an "oil price war" when it announced it would aggressively cut the price at which it sells its crude oil by the most in 20 years.

The price of crude oil immediately dipped 31% - the biggest percentage loss since 1991.

The country's plan is to keep oil prices lower for longer in order to put its Russian counterparts out of business.

But Saudi Arabia's actions have more consequences than hurting its Russian counterparts.

When the price of oil drops this much this quickly, it has global ramifications.

In fact, our latest oil price prediction could turn the industry on its head.

And it will create two moneymaking opportunities for you...

Here's Where the Price of Oil Is Headed Next - and What to Do About It

[mmpazkzone name="in-story" network="9794" site="307044" id="137008" type="4"]Oil is currently trading at $31.25 per barrel, its lowest level since February 2016.

But we believe prices could easily dip another 42%, to $18 per barrel.

That will be a drastic shock to the oil industry. But it's an opportunity too.

And by the end of this article, we'll show you two of the best ways to profit from this decline...

First, Russia doesn't appear to be slowing its production just yet.

And Saudi Arabia has already announced plans to increase production by 1 million barrels per day, starting next month.

Currently, Saudi Arabia is producing about 9 million barrels of oil per day.

That will likely increase to 10 million in April.

And we expect it could go as high as 12 million barrels per day by the summer.

With that increase in supply, there is a greater probability that oil drops in price.

Moreover, it only costs Saudi Arabia about $9 to produce one barrel of oil. That's less than anywhere else on Earth.

In Russia, it costs an average of $19 to extract one barrel of oil out of the ground.

But the Russian finance ministry says Russia can weather oil prices of $25-$30 per barrel for six to 10 years.

That's an extremely long time.

So, if Saudi Arabia is trying to bleed Russia out as quickly as possible, expect it to be targeting $18-per-barrel oil.

Even if Saudi Arabia sells its oil for $18 per barrel, the country can still double its money on every barrel sold.

So we expect Saudi Arabia to shorten that six- to 10-year timeline drastically and do a lot of damage to Russia's economy when the price of oil is down to $18 per barrel.

As this oil price war continues, here are two of the best ways to profit.

Action to Take: Buy puts on the United States Oil Fund (NYSEArca: USO). If you buy the July 17 $4 puts on USO and oil drops 38% by April 9, you would make 192%. You could also buy the ProShares UltraPro 3x Short Crude Oil ETF (NYSEArca: OILD). Just be aware that this ETF will move inversely to the price of oil, times three. These are not "set it and forget it" trades. Be sure to monitor each closely.

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