For the first time in recent memory the stock market is worried about high oil prices. Equities finally took notice of a commodities market screaming out to be recognized. The rising oil price suddenly isn't as amusing as it was in the last few weeks as traders attributed any increase to growth in China or the intoxication of the bottomless barrel of economic stimulus that was intoxicating to stocks as it was for oil.
Yet now the historic wave of change in North Africa and the Middle East is the type of stark reality check that can knock a stock market out of its bullish compliancy. For the first time since this wave of revolution born of discontent and rising food prices and terrible economic conditions, we have actually lost some supply of oil products. A force majeure was declared by Libya and a reduction in Libyan oil production sent prices soaring.
What the market place is telling us is that not all rallies in the price of oil carry the same risk to the economy. In fact, sometimes a rising oil price is the best indicator of economic expansion. Yet other times, as is the case with the Madman Gadhafi, perceptions are sometimes altered from reality.
Oil prices tried to regain some confidence after some reassuring words from the "Granddad" of the OPEC cartel Saudi Oil Minister Ali Al-Naimi who assured us that he and his buddies in his evil cabal would be more than happy to exploit these higher prices. Ok, maybe he did not quite say it that way, but he assured us nonetheless that the world would not be in want of oil. Of course the way things are going in that part of the world, who knows if he's going to be in charge next week. The International Energy Agency also tried to calm fears by making some statements.
Of course, the market was only beginning to calm when the Colonel (not Sanders) Gadhafi or is Kaddafi went on his rambling diatribe. Gadhafi said heck no, he won't go and vows to die a martyr on Libyan soil, which might be a popular choice if he just gets it over with and does it himself and doesn't bring anyone with him. Still with the Libyan Army seemingly splitting in two, the possibility of civil war is sadly becoming a more likely possibility.
In the aftermath of his ramblings and his lack of compunction for destroying human life, the oil price spiked to its highest level since 2008 and gasoline prices to a near record high for retail this time of year. We saw stress in the other markets as stock prices plunged on recession fears. Grain prices hit the downside limit in corn, soybeans and wheat as fear that rising prices will moderate the demand for protein. Copper prices plunged on fears that China would have less demand in a world that was restrained by higher prices. We saw treasuries rally in a flight to quality as did the precious metals. Perhaps even the precious metals rally was restrained a bit by fears that a recession may curtail some metals investment buying. We saw the bonds and notes rally in a flight to quality play inspiring a very good auction.
It is obvious by the warning signs that we are seeing in other markets that this oil rally is different than any other we have seen this year. This is not a macro rally or a rally inspired by QE2 or some other extraordinary stimuli. This is about fear and the increasing possibility that global oil production will be at risk.
Phil Flynn is senior energy analyst for PFGBest Research and a Fox Business Network contributor. He can be reached at (800) 935-6487 or at firstname.lastname@example.org.