NEW YORK-Crude prices on Friday rebounded to above US$90 a barrel on optimism about economy recovery next year, hitting the highest annual close level since 2007. According to analysts, gains will extend to 2011, next benchmark of $100 a barrel will be attended soon. On the last trading day, the light, sweet crude for February delivery rose sharply by 1.54 dollars, or 1.71 per cent to $91.38 a barrel on the New York Mercantile, about 15 per cent higher than it was on the last trading day of 2009. Brent North Sea crude for delivery in February settled up $1. 66 to $94.75 a barrel on the ICE Futures Exchange. Compared with its first trading day open price, it surged about 22 per cent. Looking back to the whole 2010, although taking highs and lows, the crude oil prices still wavered up, with WTI hitting an average price of 79.61 dollars a barrel, only below the 2008's record $99.75 a barrel. Conley Turner, Wall Street Strategies' senior research analyst, said, "The price of crude oil breached the psychologically important level of $90 per barrel to the year-end as traders and investors have become more optimistic about the economic prospects of the United States.
A combination of factors including positive data about the macro economy, a declining dollar and favourable inventory numbers are all contributing to the secular rise in the price of the commodity." In May, the crude oil prices saw a steep as European debt problems became worse and curbed the demand expectation. The US dollar index, an important factor for tracking the short term oil price movement rose sharply on European debt concerns, which intensified declining of oil prices. The New York benchmark fell from the beginning of May and dipped to its year-low of $68.75 a barrel on May 25.
Now with $91.38 a barrel, the oil price has surged 33 per cent from its deepest level in 2010. According to Victor Lee, portfolio manager of the Oppenheimer Gold and Special Minerals Fund, "demand-supply gap was the main cause that underlay the crude oil price surging in 2010. More positive signs of US economy recovery, the increasing demand from a number of developing countries and worldwide cold winter helped the demand, while oil producers like OPEC had no will to output more." The BP oil spill disaster that started in April of 2010 also triggered oil prices'jump. Many analysts believed that the BP oil spill would have a long lasting effect as oil demand all over the world remains tight.
More gains expected in 2011 on demand growth
Large banks like Goldman Sachs and JP Morgan are bullish on oil prices in 2011. In fact, it's hard to find any analyst or trader that expects oil to go down any time soon. Goldman's commodities strategists see oil futures rising to $105 a barrel in 2011. And JP Morgan forecast $100 a barrel will be breached on a spot basis in the first half of 2011 and $120 a barrel before the end of 2012. Lee said, "As in short and medium term the global oil demand is higher than supply, oil will climb further in 2011." He remained optimistic about the world economy, figuring that European economy would not see further meltdown and US economy would thanks to the monetary and fiscal measures continue to recover at a modest pace. And Turner echoed this point, saying, "At this point, all the factors necessary for a sustained move in oil price appear to be in place." "An improving US economy coupled with low interest rates and the weak dollars are important considerations for this outlook. Also continued GDP growth in China and subsequent demand are also decisive factors in driving the price higher." He said: "Given prevailing trends, it is not unreasonable to assume that the price of oil will achieve the $100-per-barrel level by summer of 2011."