Geopolitical uncertainties will remain the biggest factor in the price of oil in 2007, while the price is expected to average $60 to $65 per barrel, according to a CNBC survey of top energy experts.
CNBC surveyed 20 top energy analysts about their top seven factors for oil prices this year, and the majority was in agreement that issues such as Iran's nuclear ambitions, instability in Iraq and rebel attacks on oil infrastructure in Nigeria will be the biggest factors in the price of crude.
Any one of those situations could choke off oil supplies, reigniting market fears and sending prices sky high.
How the world's largest oil cartel manages the price of oil and its reaction to geopolitical events ranked second on the list.
"We'll be looking at OPEC and whether they continue to be ineffective at preventing prices from falling and from curtailing supply," said Addison Armstrong of TFS Energy. "The two moves they have made over the past two months really have not done much."
"If we have a further lag to the downside in the U.S. dollar then OPEC is going to try to preserve their purchasing power by aiming a little bit higher in dollar terms in their oil prices," Tim Evans, oil analyst at Citigroup, said.
OPEC's New Year's resolution is to cut output by 500,000 a day on Feb. 1, but the cartel does not meet up until March 15. At that time, Angola, one of the world's fastest-growing oil producers, joins the cartel.
Non-OPEC oil supplies came in at No. 3 on the survey. With Angola joining OPEC, the pressure is now on to develop new sources of oil outside the cartel after two years of double-digit growth in exploration.
The Dollar Dip and Global Growth
The fourth concern among the group of experts was the sharp drop in the dollar at the end of 2006. A slowdown in the U.S. economy could cause demand for crude to fall.
"We have to be very conscious of the pace of growth in the U.S. and dollar weakness and dollar strength," Armstrong said. "Most forecasters are calling for a slowdown in the U.S. economy. If that happens, our demand for crude and refined products is going to shrink."
Not surprisingly, global demand followed worries about U.S. growth at No. 5 on the list.
China accounted for 45% of demand growth in 2006 and whether the Far East maintains that pace will go a long way in determining the need for oil in 2007.
Alternative Energy and Mother Nature
With oil prices hitting a new all-time record of $77 per barrel last year, alternative energy received a lot of attention. And with the Democrats taking control of Congress, the analyst saw alternatives to petroleum as the sixth most important factor for 2007.
"You're going to see a greater push, I think, for Ethanol's implementation across the country and other fuels, for that matter, like biodiesel especially," John Kilduff of FIMAT USA said.
Rounding out list is weather. Winter has done little to influence prices thus far, but one arctic blast could turn up the heat and oil prices. Another danger is an active hurricane season, which some early forecasts are already calling for.
Natural gas prices are expected to average $7.50 per million British thermal units in 2007, according to analysts.
Where is the Price Heading?
Nearly all the analysts surveyed by CNBC agreed that OPEC will do everything it can to reinforce a price floor of $50 to $55 per barrel.
But the majority expect crude to average $60 to $65 this year.
"We tend to think crude is going to stay right around these levels $60," Dan Pickering of Pickering Energy Partners said. "We think geopolitical issues probably bias that number higher. OPEC is going to support when oil moves into the mid-$50s so we think $60 is a number (where) both demand continues to grow and certainly helps supply in terms of reinvestment in the business."
"I think 2007 is going to be a more typical year for the oil market," Citigroup's Evans said. "I'm not expecting the big bull market to return."