The Dow lost 178 points today as oil spiked on Libyan tensions escalating. Oil is up to about $95 a barrel and we are seeing unrest in Bahrain and many other Middle Eastern countries. Egypt is certainly still a big problem as well. Libya has the largest proven reserves of oil on the African continent, so it is hugely important with regard to oil supply and prices.
The reality is that, even though we tend to think of the Middle East as being relatively stable most of the time, it’s not. They have been fighting with each other for millennia and that will not change. The only difference today is that they control a large amount of the world supply of oil, so when unrest rises, we feel it more.
The other problem, in terms of our financial markets, is that valuations are so extended right now, that it doesn’t take much to knock stocks, bonds, and even commodities down. Today was a good reminder of the fact that a little uncertainty can rip a few percentage points off of the markets when valuations get this rich.
Stay tuned for more volatility as tensions rise and as unrest spreads across the Arabian world.