NEW YORK/LONDON Oil prices will soar above $130 a barrel by late 2011, a new Reuters poll found, and one in five traders said they expected oil to hit $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 retreat.
Brent futures, a global benchmark oil contract, has risen almost $8 over the past five days to settle at $122.30 on Wednesday. They have jumped above $120 a barrel this week for the first time since 2008.
World oil prices in the $130-$150 range ring alarm bells for macroeconomic forecasters.
"It would be devastating, I would think," said Yelena Shulyatyeva, BNP Paribas. Her growth forecasts are based on oil at $110 a barrel.
"If we see something like $130, that would definitely hit confidence, and consequently consumer spending will be hit even more than in our forecast."
Cary Leahey at Decision Economics in New York said most people estimate that oil at $130 a barrel would shave 0.5 to 0.75 percentage points from growth in the United States, which now is expanding around a 2.5 to 3 percent rate.
In the Reuters poll, almost two-thirds of the traders and oil experts said they do expect a short-term correction from today's level to below $120 by the end of June. One expected it to drop below $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, who forecast $135 toward year end in the poll.
"Global tensions are likely to support oil for now, but in time prices above $120 for Brent and $100 for West Texas Intermediate (WTI) will undoubtedly slow global economic growth."
Higher prices already are starting to weigh in the United States, the world's largest oil consumer.
U.S. Government data on Wednesday showed gasoline demand over 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 $4 level seen in the summer of 2008 when crude oil hit a record $147.50, seting off a plunge in U.S. gas demand.
Torsten Slok, an economist at Deutsche Bank in New York, said he would watch sales of new and used cars very closely for early signs of whether the recent price surge is hurting economic growth. U.S. car sales have been rising recently and autos accounted for 1 percent of the Q4 US GDP growth of 3.1 percent.
If car prices slip, Slok said, "I would also start to get worried that maybe 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 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 $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 $130 a barrel at some point in 2011, and one in five predicting prices will reach a record $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 $175 a barrel in the third quarter, arguing weakness in the dollar would also drive more investors into hard assets.
Indeed, Saudi Arabia's oil minister Sheikh Zaki Yamani told Reuters on Tuesday that oil would skyrocket to $200 to $300 a barrel if serious political unrest reached his country.
On the other end, Oil Outlooks President Carl Larry, who called the return of $100-plus crude early in 2010, now sees prices dipping below $100 by the end of June before rebounding back toward $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.
Oil should trade between $105 and $115 by the end of June, most respondents said. Only three out of 32 saw prices remaining between $120 and $125, while eight believe prices will continue to rise through the quarter.
A price fall this quarter would run contrary to the historical trend. 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 $100," she said.
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 OPEC officials on Wednesday cast aside concerns that Brent at $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.
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."
(Writing by David Sheppard in New York; additional reporting by Florence Tan and Li Peng Seng in Singapore, Edward McAllister, Jeffrey Kerr and Selam Gebrekidan in New York, and Mark Felsenthal in Washington; David Gregorio, Jeffrey Benkoe and Dale Hudson)