There’s short-term panic and long-term fear.

Both are at work in the financial markets this morning. The common factor, of course, is Libya, where Muammar Gaddafi seems determined to fight for control to “the last man standing” in the words of his son Seif al-Islam. Libya pumps about 1.6 million barrels of oil a day (making it the eighth largest OPEC producer)—or at least it did before protests calling for an end to Gaddafi’s 40-year dictatorship sent Western oil companies scrambling to evacuate their employees.

Short-term panic has sent prices for West Texas Intermediate crude oil as high as $94.49 a barrel, the highest since October 2008, in New York this morning. Brent, the European oil benchmark, climbed to $108.57 in European trading. (Libya is a major source of Europe’s oil. The United States is not a big importer of Libyan oil.)

Gold advanced another 1.1% as of 9:30 this morning after climbing 1.2% yesterday. Silver was up 3.8% on Monday and has moved up another 3.1% today.

When nobody knows what’s going to happen and when the worst of possible outcomes all seem possible, markets tend to swing to extremes. That was certainly the case yesterday when, for example, rumors circulated that demand for physical silver was about to shutdown the COMEX, the New York commodity exchange, and I heard a new round of rumors that King Abdullah of Saudi Arabia had died. (He was also rumored to have died on February 10.) Speculators love rumors like these since they drive prices in crazy moves. It helps when volumes are down for a market holiday (The Presidents Day holiday in New York yesterday.) And when there’s some truth behind the rumor—or at least a history of rumors. There have been rumors about manipulation in the silver market and worries about problems of physical supply for months now, for instance.

When something gets resolved in Libya, we’ll see much of this short-term panic recede just like it did after the end of the standoff in Egypt. (And then we move onto worry about the next domino—if there is one.)

But that still leaves the long-term fear that this wave of crises will reset the price of oil higher enough to stall the global economic recovery. Oil above $110 a barrel or so, in my rough calculations, would be enough to create a significant danger of a stall in the developed (and oil importing) economies of Japan, the European Union, and the United States. ) Oil producing and oil consumer nations meet today at a previously scheduled session in Saudi Arabia and I’m sure Libya will come up. The Saudis have spent the last few days downplaying any supply problems created by the Libyan crisis, making it clear that there is no need for a special meeting of OPEC (the Organization of Petroleum Exporting Countries.) The Saudi line is that their country has substantial excess production capacity that they are willing to use and that there will be no disruption in global supply.

That’s not the same, however, as saying that oil will come back down to $85 a barrel. Using Saudi Arabia’s excess capacity to bridge the gap created by the Libyan crisis means that this excess capacity will not be excess any longer. It won’t be available for the next crisis. I think it’s reasonable to conclude that even if the Saudi’s start pumping to make up for Libyan short falls, the price of oil won’t go back to pre-crisis levels because the world will have less excess capacity in the system.

Nobody knows where the price of oil might reset. $100 a barrel and I think the global economic recovery feels the pain. $95 not a big problem. $85 and no big deal.

It’s this uncertainty over the post-crisis price of oil that is taking down the price of economically sensitive commodities such as copper. Copper futures were down about 2% in New York as of 10:20 Eastern Time.