Welcome to Thoughts on the Market. I'm Andrew Sheets, Chief Cross Asset

Strategist from Morgan Stanley. Along with my colleagues bring you a variety of

perspectives, I'll be talking about trends across the global investment landscape and how we put those different ideas together.

It's Friday, September 27th at 2 p.m. in London.

On Monday, September 16th, oil prices rose 14% after an attack on an oil facility in Saudi Arabia

that represented about 5% of total global oil supply. In the days since this

jump in prices has largely reversed,

as damage to the facility was less extensive than initially feared,

and no further disruptions have materialized.

But it does raise a relevant question.

How much do increases in oil prices matter for the economy and for the markets?

The first thing we'd emphasize this is a very difficult question to generalize.

Oil is an inelastic good, another way of saying that small changes to supply or demand can have very large impacts on the price.

But history suggests that whether demand or supply is the changing factor really matters.

This means there are actually two kinds of oil price spikes

with two very different implications. The first type of oil price spike happens because demand for oil increases.

This often happens early in an economic recovery when better growth means more demand

for energy, while the long-term nature of oil production means that new oil supply is slower

to come online.

Because it's being driven by better economic growth,

this type of oil price rise has generally been a good sign for markets, followed by better

than average stock market performance. The second type of spike happens because of

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