The past five global recessions have all followed sharp jumps in the oil price. While fears of a "spike and crash scenario", as Francisco Blanch of Bank of America Merrill Lynch puts it, receded early this week, global stocks soon slipped again. News of a sharp stock market slide in Saudi Arabia, prompted by fears that unrest could spread to this key oil producer, has sent Brent oil above $115 a barrel.
The hope is that immediate supply shortages won't be too bad and so the oil shock will prove temporary, says Gavyn Davies on FT.com. Saudi Arabia's pledge to replace lost Libyan output, along with the International Energy Agency's reminder that developed world inventories are high enough to replace a year's imports, helped fuel confidence.
One problem, however, is that while Saudi Arabia has enough spare supplies to cover Libya's output, Saudi oil is mostly heavy, high-sulphur crude. Libya's is light and sweet, and easier to refine. So making up for Libya's output, around half of which has been lost so far, is not simply a question of Saudi oil firms pumping more.
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Western stockpiles, while reasonable, are still at a two-year low of 57.5 days of supply, says Gregor McDonald on the Gregor.us blog. The upshot? David Knapp of Energy Intelligence reckons that there is enough oil around the world to handle a "medium-duration outage from Libya". But if unrest spreads to another major producer, "all bets are off", say Richard Milne and Jack Farchy in the FT.
The same goes for stocks. According to Morgan Stanley, oil may not be too far off the "choking point" for equities. Morgan Stanley's Matthew Garman notes that pan-European equities began to swoon once oil reached around $125 a barrel. However, the economy is in better shape now than in 2008, so the point at which oil becomes a severe drag on stocks could be higher.
Besides, history shows that recessions or severe growth scares occur after oil has jumped by 85%-90% in a year. Oil is currently up by under 50% and would need to hit $140 a barrel to notch up an 85%-90% rise. By this analysis, oil is not yet a threat to the global recovery, according to Garman.
However, Western economies are much shakier than after previous recessions and valuations are far from compelling. The threat of higher oil is about the last thing equities need.
