Analysts sharply raised their average forecasts for oil prices next year to a record near $74 a barrel on expectations for a cold winter season, a weakening dollar and an influx of fund money, a Reuters poll showed on Monday.
The monthly survey of 37 analysts put the consensus forecast for U.S. crude futures in 2008 at a record average of $74.43 a barrel, up $3.94 from last month's poll. The average price for oil so far this year is $70.20.
"Our oil price scenario assumes a rise in the average price of oil to $100 at the peak of the winter season and a correction from March into spring," said Harry Tchilinguirian, senior analyst at BNP Paribas Commodity Derivatives.
"Weather is a key caveat, but we assume that cold weather will trump a U.S. economic slowdown as the market's overriding concern," he added.
Most analysts believe oil will soon top the $100 milestone after prices rallied to a lifetime peak of $99.29 a barrel last week. But some warn that oil, which is up about 40 percent so far this year, is long overdue for a market correction.
Jan Stuart, global oil economist for UBS Securities, said: "$100 oil will not stick. We believe the factors that got us there should play out soon."
The United States and other oil consuming nations have urged the Organization of the Petroleum Exporting Countries to further boost output when it meets in Abu Dhabi next week.
But few in OPEC believe there is much they can do to tame a market they say defies logic.
The group agreed in September to increase production by 500,000 barrels per day from Nov. 1. It is not yet clear what actions, if any, OPEC will take at its Dec. 5 meeting.
"Should more OPEC supply emerge by December, it would need to be large in order to dent market psychology," Tchilinguirian said. "And given logistics and lead times, it will unlikely be on time for winter, arriving more visibly in spring."
Analysts also attributed oil's rally to the battered U.S. dollar, which has fallen to unprecedented lows against the euro .
"Low interest rates and a low dollar have encouraged speculative activity in oil, but a turn upward in the dollar could easily reverse the flow of hedge fund investments in oil," Deutsche Bank said in a recent research report.
Analysts forecast London Brent crude to average $72.88 a barrel next year, up $3.34 from last month's poll.
Although the Reuters poll showed oil will peak next year, analysts remained bullish in the long term with prices expected to average near $70 through 2010.
The median forecast for U.S. oil prices in 2010 rose to $68.26 a barrel, up $5.05 from October's poll.
"We expect the balance between oil supply and demand to remain rather tight and tenuous," said Stuart of UBS. "We foresee relatively high oil prices in the next five years."