NEW YORK (TheStreet) -- There are a couple pivotal reasons that can be attributed to the past four months of plunging oil prices.
First, North American shale oil production successes combined with slackening global demand. And second, Saudi Arabia's lack of desire to cut production and willingness to discount their oil to trading partners (that's a way for the Saudis to gain back global market share and put pressure on domestic shale producers to lay down rigs as they find their operations unprofitable in this environment).
Must Read: Oil Prices Stuck in "Gray Zone" and Could Fall Further
Where to Invest?
If you are in the camp that believes recent oil pricing is a function of supply outstripping demand then you may want to consider hunkering down in the midstream space in order to maintain exposure to the energy sector, but mitigate volatility.
Pipelines are considered the FedEx of the energy world as they simply deliver product from point A to point B and their income has little to do with underlying commodity pricing. They make their money much like a vehicle toll way system.
If the past is any indication of the future, then pipelines may provide some near-term opportunity vs. their exploration and production counterparts. In our last major pullback in energy beginning the second quarter of 2011 we saw pipelines -- as measured by the J.P. Morgan Alerian MLP ETN (AMJ) -- lose about 17.6% and exploration and production companies -- as measured by SPDR S&P Oil & Gas Exploration & Production ETF (XOP) -- lose about 38.6%.