Trading idea for oil: a weird kinda pair trade

It's clear that OPEC, geo-political risk, loose Fed and a resulting sh*ty US dollar will not let oil stay below $40 a barrel for all of 2009. However, given the global recession underway, it is clear that WTIC will not exceed $60 a barrel in 2009 (fyi Brazil and OPEC say they need about $75 a barrel for additional investment/supply...good luck with that).

The point is that crude will rise in 2009 but not enough to help oil producers/drillers who's business models require much higher prices. So how will I play this anticipated situation of rising crude but suffering oil producers?

*I will buy and hold the DXO (The 2x long oil ETN) and swing trade the DUG (2x short oil ETF) *

At first glance this trade might look pointless since the two trades would just cancel eachother out, but here's why that won't happen:

1) The DXO is an ETN (exchange traded note), which does not suffer from the same daily resets and time decay issues as the options in the DUG and all the other Proshares leveraged ETF's. A simple look a the DXO and DUG charts shows that the DXO is safe to "buy and hold" if you expect crude to stabilize somewhere higher between $40 and $60 (ie there is no need to market time this ETN).

2) The DUG is a play on the oil producers/drillers and not directly on crude oil spot prices like the DXO. The DUG tracks the Dow Jone U.S. Oil and Gas Index so it is more correlated to the daily stock movements of Exxon, Chevron and Conoco Phillips (those three combined make up more than 45% of the NAV of the index). Granted those three producers are linked to oil prices, but recently there has been a notable divergence in price action between oil prices as seen in the graph below (note the USO is an index that tracks WTIC prices):

The chart shows that despite crude oil's crash, the producer stocks have held up relatively well (aside from COP). Nevertheless, EVEN IF CRUDE OIL RISES TO $45, $55 or even $60 a barrel, XOM and its peers cannot be viable investments (OPEC, Brazil, Russia, etc. have said that $70 is support for them).

So the way I will play the inevitable demise of oil producer stocks in 2009 is with the DUG and I will hedge myself with any rise in oil prices by going long the DXO. Please note that because of the time decay issues associated with the options in the DUG, I must swing trade the ETF and market time the SOB, but the DXO is a pure buy and hold. Now I haven't implemented the trade yet, but when I do I will certainly let you know.