Opinion on  UltraShort Oil & Gas ProShares (DUG)
Oil is a commodity

Over the very long run commodities decline in inflation adjusted price.  Oil is too expensive to be sustained at these levels despite all the stories you read.

Today the wheels are in motion to reduce consumption, increase supply and diversify energy input choices in the remaining hardwired places like transportation. 

Some say that when a commodity represents a small portion of overall cost we are price insensitive.  Again this is true in the short run but not the long run.  As prices go very high it stimulates profit-making investments in alternatives which can offer equal or better value at lower prices.  This is simply the mechanism of markets at work.

It does take time and dealing with the time horizon is difficult.  However the market does discount and psychology can change rapidly. 

We don't espouse a huge position in DUG or other oil short exposure vehicles but it has treated us well recently and we plan to continue to maintain a position as oil retraces some of the parabolic gains that it has had in the last year. 

Arguments about oil will never end but we have studied the situation for some time and believe the work of Julian Simon and others are very conclusive.  Oil may well go to $200 from here, we have no idea but over time it will be trending back to lower inflation adjusted prices of $100 or lower.