Oil prices may reach US$100 earlier next year
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100 dollars a possible mission
An increasing number of major banks including JP Morgan and Deutsche Banks have raised their crude oil price forecasts recently, predicting that the oil price will breach through 100 dollars a barrel in the first half of 2011 and 120 dollars before the end of 2012 on tightening supplies and ongoing strength in emerging market oil demand.
International Energy Agency Chief Economist Fatih Birol also said recently that the age of cheap oil is over.
Donovan said "Besides QE2 and economic stimulus policies around the world, the oil demand worldwide, particularly from Asia seems very robust, therefore, the international demand as well as inflationary pressure could bring the prices much higher."
Meanwhile, some trader believed that a cooling trend in the Pacific known as La Nina may change weather around the world, thus boost prices for heating fuels.
"It has been a pretty cold November, the more people have to heat, the more energy consumption there is," said Zeman.
But some analysts believed that the fundamentals of oil market still remain weak, and it takes time to change the well-supplied situation due to the fragile global economic recovery.
A MasterCard Advisors' SpendingPulse report released on Nov. 23 showed that the average U.S. gasoline demand dropped 83,000 barrels a day (bpd) to 9.119 million bpd in the week ended Nov. 19, and the U.S. gasoline consumption fell 1.0 percent on a year-on-year basis over the latest four weeks, indicating few consumer pumped gasoline even over the weekend before the holiday season this year.
Meanwhile, the U.S. Energy Information Administration said in its weekly crude oil report released on Nov. 24 that crude oil and gasoline inventories in the country moved up by 1.0 million barrels to 358.60 million barrels during the week ended Nov. 19, and is above the upper limit of the average range for this time of year.
Flynn pointed out that the major factor behind the rally of oil prices this year were namely four rounds of major economic stimulus including the bailout after Dubai, Greece and Ireland crisis, as well as QE2.
And a rash of strong economic data released recently also helped to lift market sentiment, but the fundamentals of the oil market still remain quite weak.
"The supply and demand of oil market is having a historical shift here in the United States, few weeks ago, we have the highest level in supply since the first world war," said Flynn.
The global economy is too fragile to tolerate 100-plus-dollar oil prices.
Several traders mentioned that the oil prices range between 70 dollars and 90 dollars is health for the economy.
"The bottom line is the higher the price goes, the more impact it has on our economic recovery," said Zeman
Zeman said that even the oil company, OPEC and other oil producers realized that it's in their best interest to keep oil price in a certain range, and they don't want the price skyrocketing, because it will choke off demand and has a domino effect throughout the economy.
"A 100-dollar-plus oil price is not going to be a good thing for the global recovery, that's why market forces like suppliers and users don't allow oil to make the percentage move we have seen in gold and some other commodities," Zeman added.
Zeman believed oil price might reach 100 dollars per barrel in the second quarter of 2011, as more liquidity flow into the economy and people start to expand spending, which may lift the demand of the oil.
"But if the situation in Iran or the Korean Peninsula escalate, you could see a spike in the oil price, which may surpass 100 dollars per barrel in a day or two," Zeman said.
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