How Geopolotical Risk Is Affecting Oil ETFs

March 17th at 6:00am by Tom Lydon

Crude oil futures and spot prices moved higher as the Middle East remains unsettled, and as the nuclear threat in Japan hovers over markets and the performance of exchange traded funds (ETFs).

Light, sweet crude rose 0.8% on Wednesday, to settle at $97.98 a barrel, reports Dan Strumpf for The Wall Street Journal. This comes after a 4% loss earlier in the week.  Crude supplies are still at risk as the unrest in Bahrain has intensified, with demonstrators and police.  The fear is that the unrest will spill over into Saudi Arabia, a major producer of oil.

The nuclear uncertainty in Japan is also affecting oil prices, as oil-market participants remain fixated on reports of damage to Japan’s Fukushima Daiichi nuclear-power complex. [Nuclear Impact On Oil And ETFs.] Japan, the world’s third-largest oil consumer, is likely to require an increase in fuel oil imports to generate electricity in the long-term as a quarter of its nuclear power plants have been taken offline, explains Saurbah Chaturvedi and Prasanta Sahu for The Wall Street Journal.[Higher Oil Prices Hold Back ETFs.]

OPEC will meet later to discuss crude oil supply and demand fundamentals and how to protect the price of this black gold. Nigeria is also trying to increase its crude oil output capacity to 4 million barrels a day from 2.5 million barrels, but is waiting for signals from OPEC.

Analysts believe oil prices would be higher if the geopolitical tensions and disaster in Japan were not a factor.

Oil ETFs caught in the geopolitical crossfire include:

  • United States Oil (NYSEArca: USO) up 11.7% over one month
  • PowerShares DB Oil Fund (NYSEArca: DBO) up 6.6% over one month
  • US Commodity Brent Oil Fund (NYSEArca: BNO) up 6.6% over one month

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.