It has been an amazing thing to watch as crude oil has dropped from $147ish to under $60 per barrel. We chose to close out our DUG position for a nice profit, although admittedly too soon. But the recent drop in oil, coupled with the shellacking that the companies within the Oil & Gas Index took was too tantalizing to pass up.

Currently, we have a 10% position for TDI Managed Growth invested portfolios in the ProShares Ultra Oil & Gas (DIG) as well as a similar allocation in my MSN Strategy Lab portfolio.

The impending rate cut was more reason to hold tight to this allocation as we felt that some level of cut would help to push down the parabolic rise in the U.S. dollar causing the price of oil to rise. That occurred right on cue.

Bloomberg is reporting:

Crude oil rose for a second day as interest rate cuts in the U.S. and China, the world’s two- biggest energy consumers, spurred optimism that a global economic recovery will boost demand for fuels.

Oil is set for its biggest two-day gain in five weeks after the U.S. Federal Reserve reduced rates by half a percentage point. China and Taiwan lowered rates while Japan may reduce its benchmark interest rate tomorrow and the European Central Bank is slated to do the same next week.

After the wild market close on Wednesday, additional stimulus in the form of $30 billion of “loans” to emerging markets was provided by the U.S. causing markets around Asia to rocket higher. That in turn helped to boost the idea that global demand could create increased oil demand.

Crude oil for December delivery climbed as much as $2.30, or 3.4 percent, to $69.80 a barrel. It was trading at $69.58 at 11:43 a.m. Singapore time on the New York Mercantile Exchange. Yesterday, crude oil jumped $4.77, or 7.6 percent, to settle at $67.50 a barrel. That was the biggest gain since Sept. 22, bringing the two-day increase to 11 percent.

Crude prices also climbed as the dollar extended yesterday’s decline, falling to a one-week low against the euro. The dollar fell to $1.3183 per euro, the lowest since Oct. 21, and traded at $1.3170 as of 11:16 a.m. in Tokyo from $1.2963 late yesterday. The yen weakened to 98.40 per dollar from 97.39.

If that was not enough…

The Organization of Petroleum Exporting Countries will “probably” cut crude-output quotas a second time to avoid the growth of inventories, Venezuelan Oil Minister Rafael Ramirez said in an interview on state television.

OPEC reduced its production target by 1.5 million barrels a day after meeting Oct. 24. Ramirez said the group would analyze the reaction of the oil market between that cut and a planned Dec. 17 meeting.

U.S. inventories of crude oil and distillate fuel, a category that includes heating oil and diesel, rose last week, an Energy Department report yesterday showed.

Add to that today’s inventory release:

Crude oil stockpiles climbed 493,000 barrels to 311.9 million barrels in the week ended Oct. 24, the department said. A 1.55 million-barrel gain was forecast, according to the median of 12 analyst estimates before the report.

Distillate inventories rose 2.33 million barrels to 126.6 million barrels last week. Analysts forecast that supplies increased 1.05 million barrels. Gasoline stockpiles dropped 1.51 million barrels to 195 million barrels, the first decline in five weeks. A 1.5 million-barrel gain was forecast.

Imports of crude oil fell 0.6 percent to 10.3 million barrels a day last week, the Energy Department said. The amount of oil products brought from overseas declined 12 percent to 2.9 million barrels a day.

On the other hand…

Demand for residual fuel, a category that includes heavy fuel oil, averaged 436,000 barrels a day during the period, down 31 percent from a year earlier. Some manufacturers and utilities can switch between residual fuel and natural gas depending on costs. The department measures shipments from refineries, pipelines and terminals to calculate demand.

No matter how you look at it, it appears that a nice bounce for the Oil and Gas index could be imminent.