Things are getting ugly out there.

There's a good chance you cringed like I did after watching the Dow fall over 700 points. Energy wasn't in much better shape, either. Oil prices dipped for the fourth consecutive day, dropping below $90 a barrel.

Yet oil falling below $100 per barrel shouldn't come as a surprise to us.

We've witnessed oil prices rise from $20 a barrel to $147 a barrel in July. That means oil prices shot up 600%. A slight pullback from that record high might have been inevitable in the short term, but that still doesn't change oil in the long run.

Now we're being told that oil's fall isn't over and that prices are headed for $50 a barrel. I don't believe prices will ever drop that far.

Think about it for a minute.

As much as we hate to admit our addiction to OPEC oil, the fact is that OPEC supplies the world with 40% of its demand. The organization has repeatedly said it will defend prices at $100 per barrel. With oil's latest fall, we can expect OPEC to either formally or informally cut production. We'll know for sure on December 17, when the group meets in Algeria to talk about production levels in 2009.

Domestic Oil Drilling Boost

While everyone's attention has been fixated on the bailout, it appears that most people have overlooked the expiration on the outer continental shelf (OCS) drilling ban.

I'll admit that it has been while since we discussed offshore drilling. If you recall, President Bush lifted the presidential ban on offshore oil and gas exploration in the OCS. Although the presidential ban was no longer in place, a similar congressional ban has been in effect for approximately 26 years. Last week, that drilling moratorium expired. Along with the OCS, the vast oil shale resources can also be developed.

Unfortunately, this may turn out to be a case of too little, too late.

According to projections by the Energy Information Administration, opening up the OCS wouldn't have a significant impact on U.S. oil and natural gas production until 2030. Leasing wouldn't even begin for another 2-4 years. Then you need to factor in time to those producers to test and get everything into place. In other words, the first trickle of production won't even begin for close to a decade.

Naturally, any sort of new production will help. But don't be fooled by the large volume of oil and natural gas in place. We need to be focused on production. Remember, having all the oil in the world is worthless if you can only produce a trivial amount of it.

Bakken Oil: Is the Fire out?

I've been told by skeptics that the Bakken play has fizzled. They go on to complain how the hype from the USGS report was overblown.

Frankly, I'm not convinced.

I'm certain my readers know how I feel about investing in oil. I can't think of any politician that isn't interested in boosting our domestic production. Unlocking the OCS and oil shales is just another example as to the lengths we'll go to increase production.

But here's a little hint...

We don't have to wait ten years for that to happen.

Investing in the Bakken Boom

Even during this financial storm, I see two more ways for investors to profit.

The first is in the steady distributions offered by Canadian Energy Trusts. Although the Canadian government is ending their tax advantages, the changes won't take effect until 2011.

And even after the proposed tax change, there are still a number of solid trusts that will be able to adapt. As I've said before, "If a trust's management is worth its salt, they'll find a way to keep their investors happy."

Another way, of course, is through the drillers. North Dakota currently has 88 rigs operating, 85 of which are in the Bakken region. And companies that are aggressively producing the Bakken are sorely undervalued after the latest market volatility. Some of the drillers in the Bakken play that come to mind are Continental Resources (NYSE: CLR), Whiting Petroleum (NYSE: WLL) and EOG Resources (NYSE: EOG).

These plays are operating in one of the few places where U.S. production is actually increasing. Once oil prices reach a bottom, I'm expecting these producers companies will put up some good numbers.

Until next time,

Keith Kohl

Energy and Capital