More on the Middle East

I'll start with the following reminder: Libya represents a small fraction of the world's daily oil production. Do not be fooled by headlines regarding the ramblings of that maniac Gadhafi and/or which city he's killing civilians in that day. The far more important headlines involve how major global powers are reacting to the whole situation. And, even that is only relevant as it relates to the future of Saudi Arabia and/or Iran.

In 2009, Libya represented 4% of the top 15 exporters of oil. No, it's not ‘nothing', but a couple weeks ago, West Texas Intermediate was trading below $85/barrel and it closed over $102 today. How is a 20% increase in price justified by such a small player? It isn't.

By the end of last week, things had largely calmed. They there were a couple things that sent oil higher and risk markets back down.

1) The Saudi stock market – which is open on Sunday – dropped about 5%; after the dust was supposed to have settled a bit. This is a problem, and should be watched closely by everyone. If oil prices are through the roof, why would Saudi stocks be dropping? Well, nothing good, is my guess. While I couldn't prove it, I get the sense the Saudi version of the SEC is not a very strong institution. This gives insiders – like the royal family - the opportunity to dump shares based on information unavailable to the public at large. The following chart of the Saudi index unnerves me:

By the way, the Chinese have picked up a free option by now coming out and saying a ‘no fly zone' would not be propitious. Now that the US has backed away, it's easy for the Chinese to say it's not a good idea. It also puts them in a position to participate in a military solution come into play. How would you feel about a Chinese destroyers providing support to a blockade in the Mediterranean? Regardless, world markets are not going to be happy with a distinct lack of concord among the powers that be.

3) There were some headlines today (Tuesday) about Saudi Arabia sending tanks to Bahrain to help put down the revolt. I think perhaps the words “tank” and “Saudi” in the same sentence were enough to make oil trader buy some more oil.