With all the financial turmoil in the equity markets, it's been easy to overlook the steady slide downward in crude oil. But it has suffered a dramatic decline.

As oil traded downward, we took some nice profits on the U.S. Oil Fund puts and oil continued to slide south. It's now trading at about $92 a barrel.

When oil was trading at nearly $150 a barrel, I was loudly suggesting -- and scoffed at by many -- that the markets were being completely manipulated and that huge price spike had little to do with supply and demand, which sounded like a wild conspiracy theory to many at the time. This has been proved to be true. Indeed, a number of reports have come out showing that one invisible entity controlled fully 15% of the oil futures on the way up -- and that at one point 85% of the bullish futures bets had nothing to do with structural trades (for example airlines or oil refiners hedging) but were purely speculative in nature by big money firms. I suspect Goldman Sachs -- who was loudly calling for $200 oil at the time -- was complicit in this manipulation.

Now that all the manipulators and speculators have slithered out of these markets, oil futures are moving straight down as they look for some kind of natural support. Another thing to consider: During the period that oil was so high it caused actual demand destruction -- some of it not so temporary. For example, airlines and the auto industry had to lay off tens of thousands of employees and airlines had to raise rates substantially -- causing many travelers to make alternative plans which they are now accustomed to. Again, some of the demand destruction may be permanent - an unintended consequence of the manipulation games being played when oil was climbing to crazy levels.

More recently, in a twist of fate, the current crisis with AIG I talk about in today's G3 Global Investor issue, has also been putting some downward pressure on oil for the past couple of days -- it has to do with AIG's insuring certain counter party risk to the futures transactions that are now less secure. That downward pressure may be temporary depending on what happens with AIG, but the forces driving crude down are likely to continue.

Where will oil bottom? How do we make money on this new trend?

Well, we made money on the way down. Now, the time is getting closer to play the other end of the equation. I'm starting to look closer at the drilling and exploration companies and the domestic oil plays with strong "proven reserves" for when demand and supply are back in sync.

Of special interest are the oil rig operators who took a hit when hurricane Ike roared into Texas. The likes of Transocean (RIG), Diamond Offshore (DO) and Noble Corp. (NE) are on my radar. I don't think it's time to buy just yet, but these stocks are worth a look.

Best wishes,

Jeff Manera
G3 Global Options
G3 Global Investor
Emerging Markets Insider
Email: Jmanera@EmergingMarketsInsider.net