Thanks to protests in North Africa, oil prices have been surging in recent weeks as investors fear the loss of meaningful supplies of the important commodity from the world supply. Until recently, the protests have focused in on relatively small countries that do not contribute large amounts to the world’s total oil supplies. However, this could change today thanks to a planned ‘day of rage’ in the world’s largest oil exporter, Saudi Arabia.
Despite the country’s incredible geological luck, many in the nation feel as though the oil wealth has been extremely concentrated in the hands of a few and that most citizens in the country have not benefited from the tremendous cash flows that the hydrocarbons have brought to the kingdom over the last few decades. Nearly 40% of Saudis aged 20-24 are unemployed and the recent protests in neighboring countries may just be the kick that the extremely conservative country needs to push for reforms. It also doesn’t hurt that roughly half of the country is younger than 18 years old, suggesting that most of the Saudi society may not be as entrenched in the ‘old ways’ as many might initially believe.
Due to these factors, traders have been growing extremely worried that the nation will descend into turmoil, halting at least some of the country’s more than nine million daily barrels of oil production. In fact, protests began last night in the country as the nation’s police force opened fire on several hundred protesters in Qatif, sending oil off of its lows from yesterday’s session. Thanks to this, and other fears across the region there are now more than 8,000 outstanding contracts for call options on $200/bbl. oil, a nearly fourfold increase since this time last month. This suggests that investors are growing increasingly worried that turmoil will hit the region and push oil prices to unfathomable heights.
In light of this possible market moving event, investors should look for oil ETFs in general as well as the PowerShares DB Energy Portfolio (DBE) to be in focus throughout Friday trading. DBE looks to be in the spotlight due to its wide exposure to a number of types of energy contracts that it holds. The fund offers exposure to not only Brent and WTI crude, but to heating oil, RBOB gasoline, and natural gas as well, ensuring that no matter what happens in the broad energy market today DBE will be impacted.
The main focus of this fund will be Saudi Arabia and the planned ‘day of rage’ scheduled to take place across the country today. If the protests turn into a full scale revolt or if any disruptions to the nation’s important oil supply are experienced, expect DBE to surge. If, however, the protests flop and the Saudi Arabian people do not come out in force, oil prices and DBE could stay steady or decline if market participants feel secure over the future production of the world’s biggest oil exporter.
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Disclosure: No positions at time of writing.
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