Oil prices will soar above $130 a barrel by late 2011, a newReuters poll found, and one in five traders said they expected oil tohit $150 this year, levels some economists say could trigger recession.
With no end in sight to the unrest in the Middle East andNorth Africa, the majority of the 32 major oil traders, bank analystsand hedge fund managers surveyed by Reuters since Monday said theyexpect oil prices to resume their climb later this year after ashort-term retreat.
Brent futures, a global benchmark oilcontract, has risen almost $8 over the past five days to settle at$122.30 on Wednesday. Brent futures jumped above $120 a barrel this weekfor the first time since 2008, while Brent's spot price topped $124 onWednesday.
World oil prices in the $130-$150 range are cited byeconomic forecasters as levels that would sap consumer spending andthreaten a fragile global economic recovery.
In the Reuters poll, almost two-thirds saidthey expect a short-term correction from today's level, saying Brentwill fall to below $120 by the end of June, and one expected it to dropbelow $100 a barrel. But any decline would be temporary, mostrespondents 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 $125 this quarter, but could hit $135 near the end of the year.
"Globaltensions are likely to support oil for now, but in time prices above$120 for Brent and $100 for West Texas Intermediate (WTI) willundoubtedly slow global economic growth."
Higher prices alreadyare starting to weigh in the United States, the world's largest oilconsumer. U.S. government data on Wednesday showed U.S. gasoline demandover the past four weeks declined 1.2 percent from year-ago levels.Average pump prices are near $3.60 a gallon, edging up toward the $4level that set off a plunge in U.S. gas demand in the summer of 2008. Atthat time benchmark oil hit a record $147.50 a barrel before plungingfive months later to $40.
Torsten Slok, an economist at Deutsche Bank in New York,said he would watch closely sales of new and used cars for early signsthe price surge is hurting economic growth. U.S. car sales have beenrising recently and autos contributed 1 percentage point to the Q4 US GDP growth of 3.1 pct.
Ifcar prices slip, Slok said, "I would also start to get worried thatmaybe then we're starting to see oil prices bite into the outlook."
There may be temporary relief. Most traders said the current rally is starting to look overdone. With the loss of Libyanoutput now priced into the market, investors are increasingly wary ofchasing prices higher. No clear threat to other Middle East supplies ison the immediate horizon despite simmering unrest in the region. Onlythree of those surveyed expect prices to top $130 this quarter.
Still,most respondents expect rising world oil demand combined with ongoingMiddle East unrest to help propel oil higher, with over half expectingBrent to rebound above $130 a barrel at some point in 2011, and one infive predicting prices will reach a record $150 a barrel by the end ofthe year.
Hedge fund manager John Kilduff in New York was the mostbullish forecaster, expecting oil prices to soar above $175 a barrel inthe third quarter, arguing weakness in the dollar would also drive moreinvestors into hard assets.
On the other end, Oil OutlooksPresident Carl Larry, who called the return of $100-plus crude early in2010, now sees prices dipping below $100 by the end of June beforerebounding back toward $125 in the fourth quarter.
"There is a lotmore risk than reward to thinking oil can follow through to the end ofthe year," said Larry, arguing that slowing demand would temper oil'srise in the short term.
Oil should trade between $105 and $115 bythe end of June, most respondents said. Only three out of 32 saw pricesremaining between $120 and $125, while eight believe prices willcontinue to rise through the quarter.
A price fall this quarterwould run contrary to the historical trend. In eight of the last 10years, Brent prices have risen in the second quarter, as refinersnormally increase production ahead of the summer driving season.
DO FUNDAMENTALS MATTER?
SarahEmerson, president of Energy Security Analysis Inc in Boston, saidtraders 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.
"Thecombination of seasonally rising crude demand and marginally less lightsweet production (Libya) will keep the pressure on Brent, even thoughthe overall global fundamentals do not warrant a price over $100," shesaid.
Emerson predicted prices would rise above $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 U.S. dollar.
Several OPECofficials on Wednesday cast aside concerns that Brent at $120 a barrelwould imperil global economic growth, although an official at theParis-based International Energy Agency, a watchdog for big oilconsuming countries, told Reuters that current prices put growth atrisk.
Qatar's Energy Minister told Reuters in New York that there is little OPEC can do to curb prices, which he blamed on financial speculators and not a shortfall in supply.
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."
(Writingby David Sheppard in New York; additional reporting by Florence Tan andLi Peng Seng in Singapore, Edward McAllister, Jeffrey Kerr and SelamGebrekidan in New York, and Mark Felsenthal in Washington; DavidGregorio, Jeffrey Benkoe and Dale Hudson)