Oil prices will soar above USD 130 a barrel by late 2011, a new Reuters poll found, and in one in five traders said they expected oil to hit USD 150 this year, levels some economists say could trigger recession.
With no end in sight to the unrest in the Middle East and North Africa, the majority of the 32 major oil traders, bank analysts and hedge fund managers surveyed by Reuters since Monday said they expect oil prices to resume their climb later this year after a short-term fizzle.
Brent oil, the global benchmark, has risen almost USD 8 over the past five days to reach USD 124.27 in mid afternoon New York trade, the first time it has jumped above USD 120 since 2008.
World oil prices in the USD 130-150 range are cited by macro economic forecasters as levels that would sap consumer spending and threaten the fragile global economic recovery.
In the Reuters poll, almost two-thirds said they expect a short-term correction from today's level, saying Brent will fall to below USD 120 by the end of June, and one expected it to drop below USD 100 a barrel. But any decline would be temporary, most respondents said.
"There are a lot of uncertainties in the market right now," said Fadel Gheit, managing director at Oppenheimer & Co in New York.
Gheit forecast prices wouldn't rise above USD 125 this quarter, but could hit USD 135 near the end of the year.
"Global tensions are likely to support oil for now, but in time prices above USD 120 for Brent and USD 100 for WTI will undoubtedly slow global economic growth."
Most traders said the current rally is starting to look overdone. With the loss of Libyan output now priced into the market, investors are increasingly wary of chasing prices higher. No clear threat to other Middle East supplies is on the immediate horizon despite simmering unrest in the region. Only three of those surveyed expect prices to top USD 130 this quarter.
Still, most respondents expect rising world oil demand combined with ongoing Middle East unrest to help propel oil higher, with over half expecting Brent to rebound above USD 130 a barrel at some point in 2011, and one in five predicting prices
will reach a record USD 150 a barrel by the end of the year.
Hedge fund manager John Kilduff in New York was the most bullish forecaster, expecting oil prices to soar above USD 175 a barrel in the third quarter, arguing weakness in the dollar would also drive more investors into hard assets.
On the other end, Oil Outlooks President Carl Larry, who called the return of USD 100-plus crude early in 2010, now sees prices dipping below USD 100 by the end of June before rebounding back toward USD 125 in the fourth quarter.
"There is a lot more risk than reward to thinking oil can follow through to the end of the year," said Larry, arguing that slowing demand would temper oil's rise in the short term.
Brent crude traded on Wednesday as high as USD 123.37 a barrel, the highest since August 2008, when prices were crashing from an all-time peak of USD 147.50 on the eve of the financial crisis. Prices eventually dropped as low as USD 40 a barrel in just five months.
Oil should trade between USD 105 and USD 115 by the end of June, most respondents said. Only three out of 32 saw prices remaining between USD 120 and USD 125, while eight believe prices will continue to rise through the quarter.
In eight of the last 10 years, Brent prices have risen in the second quarter, as refiners normally increase production ahead of the summer driving season.
Do fundamentals matter?
Sarah Emerson, president of Energy Security Analysis Inc in Boston, said traders have been spooked by events in North Africa and the Middle East, with more than 1.5 million barrels per day of Libyan crude already out of the market.
"The combination of seasonally rising crude demand and marginally less light sweet production (Libya) will keep the pressure on Brent, even though the overall global fundamentals do not warrant a price over USD 100," she said.
Emerson predicted prices would rise above USD 135 this quarter.
Others said investors were growing wary, with volumes down sharply since the start of the month.
Downside risks could come from tighter monetary policy in China, the center of oil demand growth, or a rebound in the US dollar.
Higher prices are also starting to weigh on demand in the United States, the world's largest oil consumer.
Retail gasoline sales over the last four weeks were down 1.4% year-on-year, with average prices now above USD 3.60 a gallon, MasterCard reported on Tuesday.
Several OPEC officials on Wednesday cast aside concerns that Brent at USD 120 a barrel would imperil global economic growth, although an official at the Paris-based International Energy Agency, a watchdog for big oil consuming countries, told
Reuters that current prices put growth at risk.
Daniel Hwang at Forex.com in New York said prices were unlikely to rise far above current levels for long.
"The panacea for higher oil is likely to be higher oil itself."
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