Barclays: Oil will hit $100 per barrel this year

Oil prices neared 27-month highs yesterday, and analysts are expecting the run to go on and on. A survey of analysts yesterday by Bloomberg found they expected 2011′s average price to be the second highest ever.

Today, Barclays Capital has added to that sentiment, producing its list of five predictions for the oil price for 2011. Not one of them reads well for consumers.

Here are the bank’s five expectations for this year.

1) Oil demand will remain strong in 2011, driven largely by China.The report says:

Global oil demand will reach yet another high next year, with the level in Q4 11 breaching 90 mb/d for the first time ever. While the rate of y/y growth is set to slow down, and the exceptional increase in Chinese oil demand is likely to return to a more sustainable steady rate of growth, the potential for upside surprises should not be discounted.

2) Supply will matter more than demand, with non-Opec supply growth slowing. Barclays’ view is that “non-Opec supply growth is slowly grinding to a halt”.

3) Opec will become more proactive, but won’t stop $100/barrel oil. The report suggests Opec’s main job will be stopping $100 oil becoming the quarterly or annual average.

The rolling over of existing quotas at the latest meeting on 11 December, and the absence of key statements of intent about actions to dampen any uncontrolled price upside, has effectively paved the way for further price gains in 2011.

The message implicit in Opec’s latest meeting is that control to the upside will be considered and implemented when that upside arrives and showcases far more concern and proactioveness to protect the potential downside.

4) Geopolitics will matter. Supply constraints will mean that events like the Nigerian elections could have a major impact on prices. Added to this “the political backdrop in Iraq remains very negative”.

5) Expect more volatility.

In the past the rough boundary of 5 per cent of spare capacity has often represented the border between highly volatile markets and calmer conditions.

Great news for oil bulls – pile in now. But for consumers trapped by rising demand and faltering supply, the exit from recession could look arduous.

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