Trading Fitch's Libya Downgrade (SCO, USO, OIL)

Fitch Ratings announced on Wednesday that it downgraded Libya's credit rating to B from BB and lowered the country's long term local and foreign currency issue default ratings to B from BB/RWN. According to Fitch Ratings, the downgrade was due to the instability caused by the civil war currently being fought between forces loyal to Colonel Moammar Gadhafi and a revolutionary movement that seeks an end to his rule. Other factors leading to the downgrade were that the war in Libya has drastically lowered oil production and that the actions of Colonel Gadhafi's regime have led to asset freezes and sanctions being imposed on the Libyan government and those close to Gadhafi. Fitch Ratings also removed Libya's rating from Ratings Watch Negative and gave them a Stable outlook. Although the new Stable outlook may seem to contradict the credit rating downgrade, the move was taken in order to balance Libya's continued political and economic instability with the country's "absence of sovereign debt." However, the credit rating agency announced that it was simultaneously withdrawing all of its Libya ratings because there isn't enough information from Libya to continue to providing coverage of Libya's creditworthiness. The move by Fitch to downgrade Libya's credit rating and to halt coverage of the country may be another sign that the civil war being fought in Libya could turn into a long-term affair. Although massive protests in Tunisia and Egypt forced the leaders of those two countries to step down from power relatively quickly, it's clear now that the leaders of other North African and Middle Eastern countries like Libya, Syria, Bahrain and Yemen aren't going to bow to pressure so easily. If this means that many governments in the oil rich region are going to be facing widespread unrest for the foreseeable future, the price of oil could be headed even higher. If this is the case, the United States Oil Fund USO and the the iPath S&P GSCI Crude Oil Total Return Index ETN OIL would be two investments that could see their values increase substantially. However, if the region's leaders are able to quickly bring an end to further public demonstrations and the region returns to relative stability, the ProShares UltraShort DJ-UBS Crude Oil SCO ETF would be the better investment option.