With a planned ‘day of rage’ set for Friday in Saudi Arabia, all those with a betting interest in oil (which is essentially the entire global population in one way or another) will have their eyes peeled to CNN and Twitter to see if things will remain peaceful or get ugly.

If they get ugly….look for Crude prices to move higher – possibly much, much higher. On spotty reports of gunfire during protests today – Crude rallied from a weekly low of $100.62 to a close of $102.70 (Wash Post blog). Violence in Saudi Arabia tomorrow will no doubt help managed futures generally speaking, which are likely long after a classic breakout (see here), but could be hell on the rest of the world… What would $5.00 gasoline by memorial day weekend do to the US economy (hint: it wouldn’t help).

But even if there is violence in Saudi Arabia tomorrow – is that really worthy of a huge spike in Crude Oil prices?  People will panic and think the Saudi oil spigot will get turned off, but the reality is more likely that no matter how much violence there is during tomorrow’s protests – the Saudi government will keep their oil fields, refineries, and shipping facilities well defended and operational for the foreseeable future.

We forget sometimes in the heat of news headlines which spike prices higher – that violence itself doesn’t make Crude more expensive. What really needs to happen to make Crude more expensive is to take production offline and reduce global supply. Can Saudi protesters really affect their production over the next 1, 3, or 6 months? We’re not geo-political analysts, but it seems unlikely.

Past oil spikes have been all about actual disruptions in supply, not possible disruptions. See Morgan Stanley’s recent graph showing percent gains during past crisis periods:

The more likely scenario is that fear and panic drive prices higher, but that overall supply and demand metrics remain intact, leading to equally as sharp down moves when other players bet on prices returning to equilibrium with the supply/demand picture. This will likely benefit short term traders which can take 1-3 day chunks out of the oil market on both the up and down side, and option sellers who can sell into the increased volatility; while having little effect on those longer term programs which are already long (with the back and forth representing noise).

So we’ll wait and see what happens in Saudi Arabia tomorrow, but don’t be surprised if it is a dud…