A resurgence of political risk has stuck the markets back down threatening any hope of a solid economic recovery. First, protests in Tunisia and Egypt rocked world equities and it now appears as if issues have bubbled over in Libya as well. What began as small scale protests against the autocratic regime have now escalated into near civil war proportions. Some reports cite that over 1,000 people have been killed with no end in sight to the violence, especially considering that the anti-government forces have managed to make huge inroads in the country. This has led the Libyan government to take some pretty drastic steps including shutting down oil pipelines to Europe, news that caused crude oil markets to skyrocket in Wednesday trading. While Libya isn’t a major producer of oil, it exports roughly 1.2 million barrels a day, the crude it does export is of very high quality which means that it often has an outsized influence on oil prices for an exporter of its volume. Furthermore, many are growing increasingly concerned that the protests will spread to other autocratic nations in the region such as Saudi Arabia, possibly further straining oil supplies across the world [see the Definitive Oil ETF Guide].
Thanks to this extremely uncertain situation, oil prices have been roaring higher with West Texas Intermediate (WTI) crude inching perilously close to the psychologically important $100/bbl. mark. Should prices continue their ascent higher and march past this triple digit level, it could turn this recent pullback into a full blown double dip recession crushing what little economic recovery has taken place over the last several months [read Oil ETF Investing: Five Ways To Play].
One fund that looks to be especially in focus given the recent events is the brand new product from Teucrium, the WTI Crude Oil Fund (CRUD). The fund, which debuted on Wednesday, seeks to mitigate the often devastating impacts of contango by spreading out the futures over several different contracts [see New Oil ETF Debuts]. The contracts that are included in the fund are the nearest to spot June or December Oil Futures Contract, weighted 35%; the June or December WTI Oil Futures Contract following the aforementioned, weighted 30%; and the December WTI Oil Futures Contract that immediately follows the aforementioned, weighted 35%. The folks at Teucrium certainly picked a fantastic time to launch a new oil fund and with all of the political events happening in the world’s main crude producing region look for CRUD to start off on an extremely volatile path to start its first few days of trading, especially if the situation deteriorates further in Libya or spreads to other major oil producing countries in the region.
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Disclosure: No positions at time of writing, photo is courtesy of Patrick Andre Perron.