Oil Prices and Protests

Oil prices were up huge today.  The price of crude went up about $8.  This is a major jump when the price isn't even at $100 yet.  The main reason for the big jump was because of continuing protests in the Middle East, particularly in Libya this time.

There are reports now that long-time dictator, Gaddafi (there are about a million ways to spell this guy's name), has fled Libya.  This has spooked the oil markets due to fears of an interruption in supplies.

From a liberty standpoint, these protests are a good thing.  They won't produce some libertarian paradise overnight for sure.  And we know that democracy can be just as bad as dictatorships at times.  But despite what you might hear from hacks like Sean Hannity, these protests are not mainly about religion or ethnicity.  They are mostly about oppressed people seeking some freedom.  And they are not like the protests out of Greece or Wisconsin with people demanding more government handouts.  There may be some of that in these Arab states, but it is mostly about people wanting the grip on them loosened.

Russia is a corrupt place in many ways and there are certainly more desirable places to do business.  But not many people would deny that Russia is a better place to live than 25 years ago when it was the Soviet Union.  Freedom does not usually come all at once.  Just like socialism progresses with baby steps, sometimes it is the same for freedom.  So overall, these protests are a good thing as people seek a taste of freedom that they've never had, but maybe heard about.

With all of that said, these protests could be a short-term disruption for business.  Along with oil prices, gold and silver prices went up significantly today too.  This is not to say that they couldn't all fall back down tomorrow, but we can't ignore these huge moves.  Libya produces some oil, but it is no Saudi Arabia.  If protests start to flare up against the Saudi dictators, then the oil market could really get spooked. We could see the price of oil go to $150 or even $200 in a very short period of time.  Gas prices will not be far behind.

It might not be a bad insurance policy right now to have a few oil plays in your investment portfolio.  Just the price of gas alone will get expensive if something major happens.  There are ETFs, individual stocks, and mutual funds that can be bought to get exposure to the price of oil.  If you buy individual stocks, I would recommend that you stick with the big companies.

The other interesting thing we will watch in the future is how this may affect velocity.  The velocity (the speed at which money changes hands) has been low in the U.S. since the fall of 2008.  If velocity picks up because of these events (or any other reason, like QE2), then high price inflation could be closer than people think.