How to Trade on Libyan Airstrikes (USO, OIL, SCO)

Oil prices surged higher during Monday trading in Asia, as the market reacted negatively to news that the strikes against forces loyal to Libyan leader Muammar Gaddafi had intensified. Gaddafi's government announced a cease fire last week shortly after the United Nations Security Council approved a plan to enforce a no-fly zone over Libyan skies in an effort to prevent government forces from attacking civilian populations that are under the control of rebel forces. However, Gaddafi's forces have been accused of continuing attacks on rebel held cities that were hard-pressed to defend themselves against the much better equipped government forces. Although the Gaddafi claimed to have ordered a cease-fire, American, British and French forces began targeting Libya's anti-aircraft defenses over the weekend. The jets also hit a group of tanks that were on their way to attack the rebel held city of Benghazi. Although Gaddafi has not been declared a target of the attacks, the Libyan leader's personal compound was reportedly hit in a missile strike, in what may have been meant as a personal warning. It's still not known where he has been staying since the airstrikes began but there were no reports of him being present when the missile strike occurred. The airstrikes have once again turned the tide in Libyan conflict. After early successes, the rebel forces came under heavy counter attacks from government forces for nearly two weeks. Their position was so precarious that the United States' Director of National Intelligence, James R. Clapper, told the United States Senate Committee on Armed Services that he believed that Gadhafi “will prevail” over the rebels. With the enforcement of the no-fly zone and the airstrikes against Gaddafi forces that move towards rebel positions, the pro-government forces have lost most of their previous advantages and it will be much more difficult for them to overtake any rebel positions. However, it's still no guarantee that rebel forces will be able to overtake positions currently held by Gaddafi's forces. The Western powers don't want to get involved in a ground war, so they might not be of much help in any future offensives that the rebels mount against government held cities. Regardless of whether or not there is a quick outcome to the conflict, it is looking more likely that Libya's oil exports will be lower for the foreseeable future. Even if the conflict were to end quickly, many foreign workers have deserted the country and it's not certain how long it would take to ensure their safe return. There's also the chance that continuing unrest in the Middle East could disrupt oil exports from other countries as well. The the United States Oil Fund USO and the iPath S&P GSCI Crude Oil Total Return Index ETN OIL are two investment options for investors who see the price of oil increasing further due to the international escalation of the of the conflict in Libya and the growing unrest in the Middle East. Investors who think that the end is near for Gaddafi and that his fall will lead to lower oil prices should take a look at the ProShares UltraShort DJ-UBS Crude Oil SCO ETF.