Traders are predicting that the price of oil could well crash through the $150 barrel mark at some point this week.
Oil’s meteoric rise since the start of the year has distressed consumers and policy makers the world over, but the stark reality is prices are likely to rise higher still. Since breaching the $100 mark on the first trading day of this year prices have risen around 45 per cent.
Given such momentum, analysts have said politicians’ efforts to bring the price down could well be a waste of energy.
Stephen Thornber, head of global energy research at Threadneedle Asset Management, said: “It rose so fast it’s got a bubble feel, but bubbles can go on for very sustained periods, and underlying that is an extremely tight fundamental position.”
Global demand of some 86 million barrels per day is almost level with supply, and production growth is not keeping pace with soaring demand from emerging economies such as India and China.
Morgan Stanley had predicted that the magic $150 mark would be reached by the July 4 Independence Day holiday in the United States.
However, the prediction proved a little pessimistic as prices peaked just under $146.
Nevertheless, many believe it is only a question of time – probably days – before the mark is breached.
In a blunt comment, Mr Thornber added: “You have to go to work, no matter what the price is. Fundamental demand for transport and energy is difficult to turn off in the short term, but disposable income will be hit.”
Attempts to reduce demand in the developed world are not really proving effective and rising demand in the Asian sector is not expected to abate. There are now real concerns that the price could hit $200 a barrel before the end of the year. Such prices will wreck inflationary targets and drive up the value of basic commodities as well as luxury goods as margins become ever tighter.
Growth, fuelled by cheap energy, has been sustained in recent years but this is now slowing dramatically and if the price continues to rise then it could force major economies into recession.
Even the oil exporters themselves are feeling the pinch. Those in the Gulf – who provide almost a quarter of the world’s oil – are suffering rampant inflation, as their dollar-pegged currencies import higher prices.