How about this for a curveball? Soaring oil prices and projections of $200/barrel oil forced entire industries to change course and brought flagship companies to the brink of ruin. Former Cadillac Escalade aficionados traded in their slick looking wheels for more economical options like the Smart Car or Toyota Prius.

Big oil companies like Exxon Mobile (NYSE: XOM) and Conoco Phillips (NYSE: COP) raked in record profits while Detroit’s car companies re-tooled their product line-up in an effort to stay alive. Energy ETFs topped the list of best performing sectors while other sectors were bleeding.

Impossible as it may seem, all the above happened less than six months ago. Since then, we’ve seen the price of crude oil (NYSEarca: USO) tumble from $147/barrel to nearly $40/barrel. As predictions of $25/barrel oil are perking up, the astute contrarian investor is wondering whether now is the time to go long oil.

Production cuts and a report from the World Energy Outlook in addition to the 71% waterfall decline in oil prices might be the push needed to lift crude oil prices to higher levels.

Nevertheless, oil markets should brace for a surprise decision on output cuts when OPEC meets on December 17th. Chakib Khelil, the cartel’s president suggested that reductions could be deeper than expected.

OPEC previously announced a 1.5 million barrel-a-day reduction in October. As a point of reference, the U.S. consumes roughly 21 million barrels a day. Despite the announcement, crude oil prices tumbled to a four year low of $40.81 a barrel.

Regarding the issue of stabilizing oil prices, Mr. Khelil said: “The best way is to surprise them”. Partially due to this statement, analysts are predicting further cuts of as much as 2 million barrels per day. OPEC is said to enlist support from fellow oil producing nations, Russia signaled it would sign a cooperation memorandum with the cartel.

Stabilizing oil prices is a balancing act. Oil prices that remain too low would add to global recession concerns as oil-producing nations would limit their investments abroad and themselves inch closer to a recession.

Ronnie Moas of Standpoint Research suggests not to take a bet you can’t afford to lose. Mr. Moas further notes that “we could see a situation that will jolt the oil markets upwards by $10-$20 which would be very painful for whoever goes into that with a big under-weight in the sector.”

Via our ETF Profit Strategy Newsletter we brought out a couple of weeks ago that rallies often correct to the starting point of the larger leg up. For crude oil this point sits a bit below $50/barrel. A glance at historic oil charts reveals that oil tends to get more expensive during the winter season with heating oil in high demand.

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In its report, the IEA predicts that oil prices will average $100/barrel over the next seven years. The report furthermore states that the world will need to invest some $26 trillion into oil distribution related infrastructure and exploration. The iShares U.S. Oil & Gas Exploration & Production Fund (NYSEarca: IEO) and similar, more narrow energy index ETFs stand to benefit from this movement.

There is no shortage of ETFs to bet on rising and even falling oil. Commodity ETFs such as the United States Oil Fund (NYSEarca: USO), MacroShares $100 Oil Up (NYSEarca: DOY) and the PowerShares DB Crude Long ETN provide exposure directly linked to the price of oil.

Just recently ProShares launched ProShares Ultra DJ-AIG Crude Oil (NYSEarca: UCO), the first and only leveraged ETF linked to the DJ-AIG Crude Oil Index. In theory, UCO will move two dollars for every dollar oil prices move.

Another option to benefit from movements in the price of oil is by investing in companies involved in the oil production, exploration or equipment process. Such industry sector ETFs include the Energy Select Sector SPDRs (NYSEarca: XLE), Vanguard Energy ETF (NYSEarca: VDE) or iShares Dow Jones U.S. Energy Sector Fund (NYSEarca: IYE).

In addition to the above mentioned traditional energy sector funds you will find the First Trust Energy AlphaDex Fund (NYSEarca: FXN) the PowerShares FTSE RAFI Energy Sector Portfolio (NYSEarca: PRFE) and the PowerShares Dynamic Energy Portfolio (NYSEarca: PXI), not to forget the Rydex Equal Weighted Energy ETF (NYSEarca: RYE).

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ETFs issued by First Trust, PowerShares and Rydex differ significantly from energy ETFs issued by State Street, Vanguard and iShares. How so? State Street, Vanguard and iShares use a passive selection model and weights securities according to their market capitalization. You will find that Exxon Mobil is the number one holding of market cap weighted funds due to its size.

First Trust qualifies its ETF components according to value factors such as price appreciation, book value to price ratio and other factors. Selected stocks are assigned into quintiles and weighted equally within the respective quintiles.

PowerShares uses a proprietary selection model to fill its roster of 60 ETFs assigned to their Dynamic portfolio. PowerShares' RAFI portfolios follow a selection process similar to iShares and Vanguard. The selected stocks however are weighted according to fundamental measures such as book value, cash flow, sales and dividends while the Dynamic components are modified equally weighted.

Equal weighted is also the theme of the Rydex suite of equal weighted ETFs. The Rydex equal weighted ETF contains the same stocks as the Energy Select Sector SPDRs but weights them equally. Exxon Mobil carries the same weight as the smallest included energy company.

Confused yet? As you can imagine, every weighting and selection method results in different performance numbers. Some better, some downright brutal.

ETFguide analyzed the sector ETFs of all the above mentioned companies and compared the performance numbers according to: a) the weighting methodology and b) the selection methodology. It turns out that two fund families delivered more consistent results than the rest. The results are published in the October issue of the ETF Profit Strategy Newsletter.

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