Crude oil futures have fallen below $125 a barrel in volatile trading this morning following a strengthening in the US dollar.

What are the factors leading to oil’s short-term drop? John McCain says we have George W. to thank. Justice Litle says this is nonsense. The fall of crude oil is more likely due to a number of factors coming together at once, says Justice. Like a new report from the US Geological Survey showing there could be 90 billion barrels of oil in the frozen arctic.

If oil continues to slide, keep an eye on Asian stocks and ETFs. They could be a major beneficiary…

The following extract is taken from a July 11 post: What If the Price of Oil Implodes?

What might cause such a shift in sentiment? It’s hard to be specific, and probably pointless to try. That’s why great traders try to think in probabilistic scenarios, rather than chasing every last detail. But in terms of locating the ballpark, check out this excerpt from a recent WSJ piece, “Wildcatters Plunge Into North Iraq”:

Oil executives lament that the age of “easy oil” is over. It isn’t over here. For companies that have stumbled into this corner of Iraq known as Kurdistan, it’s an era that has just begun.

“Look at this,” said Magne Normann, Middle East director for DNO International ASA of Norway, as he stood beside a pond of oil oozing up on a hillside. For fun, he heaved in a stone. “What a sight,” he said, as the liquid shot three feet high. “Pure oil.”

Iraq is well known as one of the planet’s last great oil repositories, with more than 115 billion barrels of reserves, by most estimates. The surprise is how much oil — and easily accessible oil — there appears to be in Iraq’s Kurdish region, a rugged, Switzerland-size area that has seen centuries of conflict but essentially no oil exploration, until now.

And then there’s Brazil, the country that is fast becoming the natural resource powerhouse of the 21st century. “Lula,” the affectionately nicknamed Brazilian president, says Brazil could triple its proven oil reserves to more than 30 billion barrels, thanks to the biggest offshore find since 1976.

“Not only is God a Brazilian, he’s now living in Brazil,” Lula adds.

And then, too, there’s the impact of reduced driving habits. With national gas prices above $4 a gallon, Americans are (finally) laying off the road trips. The U.S. government recently released stats showing the lowest driving levels in five years.

These background factors are known by the market, of course. They won’t catch anyone by surprise. But sometimes a loose set of facts takes time to sink in, at which point the market wakes up and says “Hey wait a minute…”

Justice is still bullish on crude oil long-term prospects. He says, “there are too many forces driving crude ever higher over the long term.” But if oil continues to slide, Justice says Asia could be the major beneficiary which means Asian stocks and ETFs could skyrocket…

Asia’s worries over $140 crude are at least threefold: The high cost of fuel contributes to local inflation (a serious problem); the cost of fuel subsidies takes a big bite out of government budgets; and the higher cost of transport (thanks to fuel again) cuts mercilessly into export profits [...]

Because there is so much concern… because so many are wringing their hands over Asia’s high-priced-energy troubles… a big drop in the price of crude oil could turn depressed Asian markets into a coiled spring.

Here is my hunch: If crude registers a huge drop out of left field, the major benefactor will be Asia… which means Asian stocks and ETFs could skyrocket [...]

And with that coiled-spring image in mind, take a look at ETFs for the following countries: China (FXI), South Korea (EWY), Taiwan (EWT) and India (IIF).