Oil Expected to Hit 100 Dollars a Barrel in 2011

by Xinhua writer Qiao Jihong

NEW YORK, Dec. 6, 2010 (Xinhua) --

Crude price reached the two-year high 89.19 U.S. dollars last week, mainly boosted by more economic recovery signs. Traders and investors are expecting oil to continue rising in 2011, reflecting the worldwide economy recovery, weaker dollars and demand-supply gap.

The period of low oil price has "gone," said Fatih Birol, chief economist of International Energy Agency (IEA).

Optimistic economy recovery boosts market

The price of crude oil has been surging of late on a renewed sense of optimism regarding the state of the global economy. In this context, Birol told Xinhua, oil is set to rise, and low oil prices have gone.

"Economies of U.S. and China, the two biggest oil demanders, are giving more positive signs," said Shanquan Li, portfolio manager of the Oppenheimer Gold and Special Minerals Fund with total assets of 4.4 billion dollars.

Li is optimistic about the recovery in U.S. and China. He said, U.S. problems mainly lie in the housing markets, while other industries are still dynamic, so the economic recovery would like to speed up gradually. And China's economy, according to Li, although facing inflation pressure and tightening monetary policies, will continue to grow in a satisfying speed.

"The outlook for the price of oil to reach the psychologically important level of 90 dollars per barrel is very much a foregone conclusion. In fact, prevailing expectations is for this to occur by the end of the year. Traders and investors are actually already looking to the next benchmark of 100 dollars per barrel level to be attained by the end of 2011," Conley Turner, Wall Street Strategies' senior research analyst, told Xinhua.

Gap of demand and supply tends to expand

"The fact of the matter is that the demand for oil is ramping up across the globe as economic activity increases," said Turner.

According to IEA monthly report released on November 12, average oil consumption per day in 2010 will increase by 2.34 million barrels, and by 1.19 million barrels in 2011.

But as to the supply, the Organization of the Petroleum Exporting Countries (OPEC), which controls over 35 percent of global output, has decided to maintain the output target for 2010 at the October meeting.

And the U.S. Energy Information Administration said in its " Short Term Energy Outlook" released on November 9, most of the 1.0 million barrels per day projected growth of non-OPEC supply in 2010 comes from the United States, Brazil, and the former Soviet Union, but this growth in world supply is not sustained in the 2011 forecast. Total non-OPEC supply falls by 250,000 barrels per day in 2011, primarily because of declining total North American and North Sea production as well as decreasing supplies from Russia.

IEA forecasted, oil demand continues to grow steadily, reaching about 99 million barrels per day (mb/d) by 2035, 15 mb/d higher than in 2009.

Gap between demand and supply is expected to increase, which will boost the prices growing.

Dollar remains crucial factor

Dollar, pricing the commodities, remains the crucial factor to the changes in the oil market. U.S. Fed announced a 600-billion- dollar bond buying plan last month, sending dollar to a falling path. As one of the consequences, oil prices surged.

Oil traders and investors are mulling the implications of U.S. unemployment of 9.8 percent released last Friday particularly in light of the degree of quantitative easing, Turner told Xinhua, so at this juncture, the dollar's weakness and inflationary pressure in the U.S. over the next 12 months suggest that commodities prices including oil are likely going to be meaningfully higher.

But on the other hand, the European debt crisis, tensions on the Korean peninsula and Iran issue would support dollar's rising, which will also affect oil market in a significant way.

Editor: Mu Xuequan