According to MarketWatch.com, “volume in the largest oil ETF, the United States Oil Fund, hit a record high close to 55 million shares on January 15th, more than doubling the level a month earlier. The number of crude futures contracts held by the fund has also hit a record high above 70,000.” Could it be that oil has hit a bottom?

Of course, in this market, trying to predict a bottom in any sector is like trying to predict Wayne Gretzky’s next move based on his last move. Still, it is worth noting that iShares CDN S&P/TSX Capped Energy Index Fund (TSX: XEG, Friday’s close: $12.91) has been range-bound since last October. Some sideways motion, but no real breakout… up or down!

OPEC production cuts and the steady depletion of the Cushing, Oklahoma supply overhang may bring some balance back to the market. Which could support a return to rising crude prices by the middle of the year.

There’s even some signs of life returning in energy M&A. French energy giant Total SA announced a proposed takeover of UTS Energy Corp., a partner in Petro-Canada’s delayed Fort Hills mining and upgrader project.

Then, contrary to the prevailing gloom in the oil patch, Imperial Oil Ltd. announced plans to increase capital spending 60% from 2008 levels, to keep developing its Kearl oil sands project on track.

Armed with this data, and ideally some additional research, traders might want to nibble at oil from the bullish side. In which case, you might want to look at XEG calls, specifically, the June 13 calls at $1.60 or less.