Unrest in the Middle East has finally sparked unrest in the global markets - commodtities and stocks both. The world waited and waited for the mass movement to spread to any of the major oil producing countries and it eventually did reach Libya causing oil prices to breach the two-year high, breaking the $100/bbl barrier.
Where now, for the oil price, is the question that everybody seems to be asking but nobody seems to have the answer - which is why the global oil price on the basis of speculation has risen to such high levels. Libya is the worlds 12th largest oil exporter and has Africas largest proven oil reserves, disrupted supply from the first Opec nation to be disturbed by the mass movement, has caused panic amongst the investors.
The fear factor is Bahrain and, more importantly, Saudi Arabia. The situation in Bahrain is keeping the speculative sentiment high in the markets as the world is unsure of the outcome. Bahrain has a significant say in the regional oil supply and many experts believe oil prices to easily go past $120/bbl in no time if the unrest continues.
Saudi Arabia is the biggest bet for speculators as hoarders have started locking their positions pushing the prices even further. The likelihood of the movement spreading to the Saudi Kingdom appears remote, but the tiny bit of room is all what the market of such a speculative nature wants. At the moment, Saudi Arabia has assured the world of increased production if supply fears arise as it has enough oil capacity to cover for the Libyan and possibly Bahrains losses.
The global stock markets have reacted to the situation and have shed considerable points in the past week or so as the global output is expected to go down with the massive increase in oil prices. As a global rule of thumb, every 10 percent rise in oil prices means half a percentage cut in the global economic growth, which has kept the investors reluctant.
On the hopeful side, the IMF thinks that the recent surge is not serious enough to derail the recovering global economy back to the recession days of 2008. There is a belief amongst economists that the global economy is standing on firm enough grounds to slip yet, unless of course the oil price breach the $150/bbl mark, which seems less likely as the major exporting countries and Opec have assured enough supply and the chances of a revolt in Saudi Arabia are distant.
Whatever happens next is anybodys guess but for sure nobody expects the oil prices to cool down in a hurry even if the Middle East crisis does not spread further. The world will have to live with the oil price over $100/bbl for a major part of 2011.