The threat of a quick rise in oil prices has been a wild card for the stock market and the economy.
Oil will be a big story for Tuesday's markets, which will also be watching S&P Case-Shiller Home Price data and consumer confidence. Some major retailers report earnings Tuesday, including Wal-Mart, Home Depot, Macy's, Barnes and Noble, Radio Shack and Office Depot. Hewlett Packard reports after the closing bell.
U.S. markets were closed Monday, but oil traded in an electronic session and was up more than 8 percent Monday evening at $93.48 per barrel, breaching the $92 level watched by some traders. Traders also believe bench mark WTI could begin to trade more in line with Brent crude, as it has done historically. Brent, which better reflects Mideast concerns, jumped above $108 per barrel Monday before settling at $105.74.
"If prices go to $100 or above, that starts being a worrying setback for the economy. It hits consumer confidence and spending - and a lot of businesses, beginning with airlines," wrote Cambridge Energy Research Chairman Dan Yergin, in a quick note.
Oil prices, which have hovered in the $80s per barrel range, have been more contained than other commodities, and that has been seen as a positive for the economy. Economists differ on how much impact a rise in oil prices has on the economy, and many point to the duration of high prices as much as the move higher.
"I think the (stock) market takes a hit," wrote Jack Ablin, CIO of Harris Private Bank. "Overseas markets were off between one and two percent, although the biggest victims were the highest fliers."
Unrest in the Mideast has taken a new turn with the possible overthrow of the government of Libya, which is the first key oil producer to be affected. Libya supplies just about 2 percent of the world's oil, but it is a very high quality.
"It will also be a reflection of more nervousness about the impact of events in the Middle East, which will affect the global economy. Add to that a failure to resolve the U.S. budget impasse, and the outlook will look a lot different than a month ago," Yergin noted.
Jack Ablin, CIO of Harris Private Bank thinks the tipping point oil price is a bit higher than $100.
Ablin said he thinks the economy could take a hit if oil heads back towards the $140 level it reached in 2008. "$4 a gallon (gasoline) will begin to weigh on the consumer and our incipient recovery," he wrote. Ablin charted gasoline against crude, and his chart shows that as oil headed into the high $130s, gasoline went above $4 a gallon in 2008.
Gasoline prices averaged $3.14 per gallon in the last week, according to the Energy Information Administration.
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