Montreal, Canada

The macro shock engulfing world markets this morning might be a short-term affair, assuming Libya can transfer government control without a civil war. This seems unlikely. Libya, unlike the other North African and Middle Eastern states undergoing revolution, is a major oil-producing country in the region. Oil prices are running hard since Monday.

If Saudi Arabia engulfs, home to more than 20% of the world’s oil reserves, then it’s 1973 all over again as oil prices super-spike north of $125 very quickly. Again, this assumes the Saudi’s are next.

The majority of companies struggling to raise prices amid surging commodities prices will be compelled to eventually boost their margins. Higher prices are coming. Surging oil prices might suffocate the post-2009 economic recovery; the consumption tax blanketing consumers continues to rise by the billions of dollars with each passing day of Middle Eastern tumult.

Other industries, however, like energy and agriculture, are having no problem boosting prices as input costs rise and the demand for their products surge.

The oil services and equipment sector is the best place to invest over the next few years because these guys have order-backlogs all the way to Mars…

The oil services industry is now in a full-blown revenue-based bull market as high oil prices justify expensive exploration by the majors; that’s a trend that will be in place for years to come as Peak Oil is perhaps jettisoned by political instability in the Middle East, and possibly, in the Persian Gulf’s Strait of Hormuz. If Iran goes, then it’s $150 to $200/barrel oil fast.

The oil drillers recently hit 52-week highs and are about 18% below their all-time highs three years ago. The sector is overbought. I suspect that despite soaring oil prices this week, the broader markets are likely to decline as the “risk off” trade returns, even temporarily. This should lead to lower oil services stock prices as selling pressure swallows most sectors regardless of the oil price trend. Add oil services on weakness.