The Fed did say that, "Commodity prices have risen significantly since the summer, and concerns about global supplies of crude oil have contributed to a sharp run-up in oil prices in recent weeks. Nonetheless, longer-term inflation expectations have remained stable, and measures of underlying inflation have been subdued."
They went on to say that they would be watching oil. "The recent increases in the prices of energy and other commodities are currently putting upward pressure on inflation. The Committee expects these effects to be transitory, but it will pay close attention to the evolution of inflation and inflation expectations."
In other words, Fed policy may be dictated by how high oil goes. At least the International Energy Agency mentioned Japan. The IEA kept its outlook for global oil demand in 2011 pretty much unchanged, saying more time is needed to determine the impact from Japan's earthquake. OK, it wasn't much of a statement, but more than the Fed had to say.
The IEA also said (which may be of interest to the Fed) that Libyan oil might be off the markets for months. They said that Saudi Arabia also created two new crude grades with a lower density and sulfur content to match the quality of lost Libyan oil shipments which may help relive the bottleneck at some European refineries.
Further, the IEA said that Japan may consume an additional 200,000 barrels of crude a day if they look to crude based fuels to replace their lost nuclear output. Now add to that all the countries around the globe that will consume more oil as they back off of nuclear power.
While the market has been focused on threats to the demand side there are still significant risks to the supply side. In Libya, Gadhafi is making more headway and the risks are rising in the region as the Saudis have sent troops to Bahrain. Iran has blasted the Saudis saying they have no business in Bahrain. Iran backs the Shiite's against the more moderate Sunni's. To add to the concerns from the supply from Nigeria could be in doubt as reports of an oil pipeline blast may take off more high quality crude from the market place. Tensions are running high throughout the region and could cause a major price spike that could even be a threat to the economy as well as global economic policy around the globe.
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.