Soaring oil prices pummeled the market Friday. But the sell off was more about paranoia than real risk. Investors should know the drill by now.

A closely watched jobs report on Friday showed that employers did plenty of hiring in February, adding to the evidence that a strong economic recovery in the U.S. is gaining steam. But investors largely ignored the news: Instead, markets sold off again as oil prices soared amid escalating violence in Libya.

Part of the anxiety is understandable. Rising oil prices tend to slow overall economic growth while depleting consumers' purchasing power at the same time. Spiking oil prices played a major role in the excruciating stagflation of the 1970s, for example.

But as with many other economic topics, like inflation, investors are better off taking a measured look at what rising oil prices would really mean for the economy rather than just running scared. Despite all the paranoia, the actual impact may be less than skittish investors fear.

Slim Odds That Crisis Will Spread

The brief spell of jubilation that marked the success of pro-democracy demonstrators in Egypt stands in stark contrast to the bitter violence now spreading through Libya. And given Libya's position as a midsized oil producer, many on Wall Street are busy trying to figure out what a shutdown of its oil output would mean for the world economy.

"The collapse of the Mubarak government in Egypt two weeks ago has been quickly followed by a deteriorating situation in Libya, where Colonel Qaddaffi now appears to have lost control over much of the country, resulting in the first significant hit to oil production," JPMorgan Chase (JPM) analysts wrote in a note to clients this week. "Even more importantly, risks are real and growing the crisis will spread to other oil producing countries such as Bahrain and, in the worst case scenario, Saudi Arabia."

But the bank puts the odds of further contagion in the region at a paltry 5%. And it sees a more welcome scenario, one in which increased production and social measures push prices down to $95 per barrel, as a far more likely ending.

The Only Thing to Fear Is Fear Itself

Even steep rises, though, may not have as large of an impact on the world economy as many alarmists think.

JPMorgan calculates that a 10% surge in oil prices would cut the world's gross domestic product by just 0.25%. By that reckoning, oil prices that climb to $110 a barrel would translate into about a 19% increase in overall prices throughout the economy during the first quarter of 2011. That would raise inflation by 1.3% while chopping 0.65% from consumer spending, resulting in a 0.43% hit to overall GDP growth.

The bank also calculated how rising oil prices would affect corporate earnings, a key element of stock valuations. There, too, the projected impact was far more muted than many investors might think. According to JPMorgan, a 10% rise in oil prices would translate to only a 1% cut in earnings per share.

But while the real impact on global growth and corporate earnings might be muted, the impact on investor psychology remains a real risk for stocks. "A key support for risky assets so far has been benign inflation and strong growth; the Middle Eastern crisis has not introduced upside risks to near-term inflation as well as downside risks to growth," JPMorgan analysts wrote.

Fear itself, then, might be the most legitimate concern for stock market investors.

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March 13 2011 at 8:56 AM Report abuse rate up rate down Reply

Why won't any of the talking heads just admit that soaring oil prices and the cost at the pump is nothing more than an unjust manipulation of the market designed to gouge the consumer. Raising prices because there may be an interuption in supply is like me calling into work and saying I can't come today because if I drive I may have a wreck. It is a rip-off plain and simple, especially considering the gas at the pump right is from oil that cost much less per barrell than it is selling for now. Smart people know that it is time to bust the Unions because they have gotten out of control and have caused great harm to our economy over the last several decades. I hope that soon, people realize it is also time to bust the stock markets around the world as they are corrupt and doing more damage to ecomomies than the Unions ever could.

March 09 2011 at 9:40 AM Report abuse rate up rate down Reply

Maybe I dont know whats going on behind closed doors. But I have to ask the public this question. WHY IS OIL GOING SO HIGH? There is still the same amount being delivered and sold at the pumps. There are no lines at the stations. There is no shortage? Are we being screwed by wall street speculators and the oil companies. they have just as much oil as they always did and yet the prices are sky high. IF OUR COUNTRY IS TO BE SAVED AND TO GET OUT OF THIS DEPRESSION, INFLATION, RECESSION, maybe Obama should consider BUILDING NEW REFINERIES OR GETTING THE ONES THAT ARE CLOSED BACK ON LINE. Strange? Take the billions that are used for bailouts and other things Obama wants it for and PUT OUR REFINERIES BACK ON LINE. this will build jobs and MAKE US OIL INDEPENDENT.

March 09 2011 at 9:26 AM Report abuse rate up rate down Reply

Each time I read about, or hear about soaring prices of oil or oil production, I just shake my head. There is simply no reason why the human race cannot create a better source of energy and fuel. There is no need to continue to drain the lubricants from the earth, drill and destroy the environment. If we can create space satellites that can deliver ENTERTAINMENT, COMMUNICATION all over the globe, is there some reason why we cannot also use these same resources to provide fuel and energy? Is Entertainment more important than fuel and energy? Why would our scientist and technologists spend precious money and resources developing Entertainment? The human race is such a dim witted and self centered thing. The entire planet also needs to cut back on its population by birth control, especially those dim witted humans who pop out baby after baby and cannot feed themselves and bring tiny babies into horrific circumstances. Some of tese people should not be allowed to have a Cockroach, much less a baby.

March 09 2011 at 9:21 AM Report abuse -1 rate up rate down Reply
Harry and Linda

We find it somewhat amusing and also scary that when the government gives out bogus figures i.e. unemployment fell in Feb., the bonehead media take it as gospel and print it. Only by cooking data does 17% unemployment become 8.9%. The scariest part of our economic situation is that we have an inept President with socialist advisers and "liberal" mainstream media. God help the U.S. during the next two years.

March 09 2011 at 8:57 AM Report abuse -1 rate up rate down Reply

what JP Morgan failed to tell you is that they have rented oil tankers to store millions of barrels of oil off shore while there crooked buddies on wall street run up the price of oil and when they finally get it up to where they want it they deliver into port and make billions for themselves and the great part is... they dont even use there own money to do it.
So that might be the reason they want everyone to think this isnt that big of a deal. Well it is a big deal as the little guys such as myself suffer under there desire to line there pockets with even more money. People are freezing because they cant afford heat and Obama cuts the fund for heating oil for the poorest of Americans meanwhile he flys around in Airforce one on vacation at our costs but heaven forbid poor American families keep warm.... SO YOU KNOW WHAT JP MORGAN IT IS A BIG DEAL!!!!!!!!!!!!!!!!!!!!

March 09 2011 at 7:19 AM Report abuse +1 rate up rate down Reply

Start buying silver each week NOW and watch it INCH its way up the scale to the 60 to 75 buck mark, when you sell all your hord Here is the brilliasnce of this whole way of making lots of extra money, when you sell your silver hord you GET BACK WHAT YOU PAID FOR THE COINS OR BARS PLUS THE PROFIT THE HORD MADE AS THE PRICE OF SILVER GOES HIGHER. ITS a NO BRANER, and you don,t need a stock licence to buy and sell, and you pay no one to buy and sell you keep all the money,,,,, Its a no brainer investing.

March 09 2011 at 2:28 AM Report abuse +1 rate up rate down Reply

I started buying silver in all forms 4 years ago, coins, bars, 90%,40% Canada Leave,s , USA silver egals..stacked them away in several large safty deposit boxes, cashed in my 401k,sold my extra truck and bought all silver .. Im making thousands a DAY profits right with the stuff just sitting in those boxes now and the price of silver will continue to go up to 75 bucks a oz. in the next year and 1/2. I still buy all i can even at higher prices, were ever i can find it and hord it, when it reaches 65 to 75 bucks a oz. ill cash in 3/4 of it and save 1/4 of it to see if it goes higher. I will make hundreads of thousands of bucks profit in a short 4 years. Get in now while it is still ok, even if prices are little high if you make 20 bucks a oz. over what you paid thats good return. Those people that bought 20 a share buck stocks and paid to buy them and sell them make hardly nothing off there money, when i bought a one oz. silver Silver egale coin for 20 bucks i paid NOTHING to hadle it and to this day are making $16.00 profit of that singlr coin, when it hits 75 bucks a oz. DO the math , and times it times hundreads of those coins. Isn,t life grand.

March 09 2011 at 2:22 AM Report abuse +1 rate up rate down Reply

Phoken bstrds are ripping us off. The American people are tired of it!

March 09 2011 at 1:58 AM Report abuse +1 rate up rate down Reply