Over the past several months, the price of crude oil has taken a steady fall and it has remained quite low. Crude oil can be processed into any number of hydrocarbons from gasoline to jet fuel to materials for plastics, but despite its various uses, the global supply is currently outrunning global demand. North American hydraulic fracturing (fracking) over the last decade has led to an increased amount of crude hitting the market, just as China’s economy has begun to hit a slower stride.

With decreased demand, crude oil has started filling up storage tanks to await further processing. Therein lies the potential for what we call a “glut”. A glut is when the supply so severely outweighs the demand that the good’s price crashes. US storage has begun to fill up over the last year and many feared that there would be an oil glut in the US. By maintaining a stored surplus, crude oil could potentially have a depressed price for a long time to come. The fear of a glut and the scarcity of crude storage have not slowed the drilling industry in North America, with crude output remaining at record highs. So what is the solution to a growing stockpile of crude oil and no place to store it? Refine it.

See a surplus? Buy it.

US refineries are looking to cash in on the largest stockpile of crude oil they have seen in 85 years. Melissa Ruiz from Kinder Morgan (KMI)  stated that they hope to have a splitter running at 50,000 barrels per day in Houston by the end of March. A splitter processes lighter forms of crude such as those produced from fracking. From the refiners’ perspective, the crude oil glut is a time to make great margins. By buying up all the cheap crude they can get their hands on, refiners are enjoying some of the best margins possible when they sell their processed products. All of this refinery activity will foreseeably use up much of the stores throughout North America. The increased refinery output looks promising for domestic crude storage worries, but North America isn’t the only continent staring down a potential glut.

Global Glut?

After years of slim-to-none margins, Asian refineries are looking to finally cash in by upping their output. While the refineries in Asia have been increasing their output, China has been buying up plenty of cheap crude for its strategic reserves. Those reserves may be full by the end of this month. This could lead to a potential Asian glut by May or June of 2015 as stockpiles reach capacity. If world-wide refinery output cannot stem the tide of crude oil, the price of crude may crash to historically low rates. But for the short-term, both Asian and North American facilities will be working to reach record output as well as record profit levels.

Short-term gains, long-term holdings

Now would be an ideal time to learn the investment trick of playing with house money. By anticipating the glut, an investor can profit from the following steps. First, investors purchase a certain amount of stock, for example 10 shares at $100 each. Next, they hold the stock while it increases in value over the next two months. To keep this example going, the value increases hypothetically to $120 per share. Finally, having seen the increase in value, the investor sells all but the profit shares, or 8 shares at $120 each. The investor now has $960 of liquid capital for further investments and 2 remaining shares of a dividend-paying stock, that essentially cost him/her $40. It’s referred to as playing with house money, because those long-term stocks were mostly purchased with the company’s own gains over time instead of solely from the investor’s capital. The refineries aren’t the only ones who can benefit from the oil glut. How will you find a way to profit from the oil glut?