Oil and gas prices have plunged to their lowest levels of 2010 this week after the government reported a glut of supplies. The hoped-for demand spike never materialized, which may ding energy exchange traded funds (ETFs).

The oil rally in recent weeks was underpinned by the assumption that the extreme cold weather would increase demand for heating and drain inventories, writes David Parkinson for The Globe and Mail. Wall Street expected a 1.9 million barrel drop in inventories, but the supply actually grew by 3.7 million barrels. Gas supplies surged by 3.8 million barrels.

The recent developments naturally have a lot of investors and energy traders re-evaluating their thoughts about the underlying demand.

Oil prices have been hovering around $80 a barrel. However, long-term forces will likely keep oil prices high, comments Sean Brodrick for Uncommon Wisdom. Mexico oil exports are down 14% year-over-year, Venezuela oil exports are down 9% year-over-year and Saudi Arabian oil exports are also down 12% year-over-year. [Energy comeback in 2010?]

If you’re watching oil, we suggest having a strategy in place before you buy – it’s no secret that the fuel is volatile. We use the 200-day moving average to determine where and when positions are taken. Having a simple strategy such as this one can help remove emotions and have you in the markets in time to enjoy any potential long-term uptrend, while a stop loss puts a cap on total losses. [A trend following strategy.]

For more information on crude oil, visit our oil category.

  • United States Oil (NYSEArca: USO)

  • PowerShares DB Oil (NYSEArca: DBO)

  • SPDR S&P Oil & Gas Exploration & Production (NYSEArca: XOP)

Max Chen contributed to this article.

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.