Oil prices may move higher to reach 100 USD earlier next year

Crude oil prices staged a strong rally earlier last month, testing 85 U.S. dollar per barrel, as dollar registered sharp losses after U.S. Federal Reserve's decision to pump 600 billion dollars into the system.

Last Friday, the prices easily shrugged off a bout of downbeat economic data and reclaimed a two-year high of 89.19 dollars per barrel as dollar suffered a drubbing.

Some analyst believed that the market forces, U.S. dollar weakness, mounting inflationary pressure along with continuous inflow of hot money into the crude oil market could see oil prices test the 90-dollar psychological mark for the first time in 2010 and break 100 dollars early next year.

GOOD HEDGE AGAINST WEAKER DOLLAR, INFLATION

Trader noted that mounting concerns of a resurgent Eurozone debt crisis is likely to stunt European economic growth prospects this year, prompting nervous investors to diversify away from euro and rush into perceived safe havens such as dollar and gold.

A stronger dollar typically keeps a lid on oil prices as it boosts the value of greenbacks paid to producers while making it more expensive for consumers holding other currencies.

"If the dollar continues to rise, it can start to be a little bit of drag on oil market," said Matt Zeman, chief market strategist at LaSalle Futures Group.

But analysts agreed that more encouraging signs of global economic recovery will lift market sentiment and Europe's progress on containing the spreading debt crisis will also help investors turn attention away from it.

If growth assumptions and risk appetite make a comeback, dollar will reverse gains right away and slip broadly as U.S. Federal Reserve has expected.

"QE2 is a double-edged sword, on the one hand, it is designed to increase economic activity, which is certainly positive for oil, on the other end of the spectrum, we saw the dollar weaken quite a bit on QE2, I believe without other external factors like Korea and Eurozone, we will probably be looking at the weaker dollar at this point based on printing more money, so QE2 is considered quite positive for oil price through increasing economic activity, or through weakening of the U.S. currency," Zeman said.

"The recent strength in dollar is reflection of lack of confidence in European economy, and the strength is just temporary," said Peter Donovan, vice president of Vantage Trading in New York.

Donovan pointed out that the crude oil has become a financial instrument saying "The crude oil is a very good hedge against equity market, dollar and uncertainties in the global economy."
(Source:xinhua)