Oil's rise to $100 per barrel and beyond is likely to continue for awhile, but the duration of the run will be ultimately be determined by geopolitical events more than current supply expectations.
Experts say it is likely $100 oil will take a toll on the global economy if it holds. That in itself would reduce demand and weaken prices. However, Dan Yergin, chairman of Cambridge Energy Research, says the real determinant of price has more to do with world events that current supply expectations.
Crude on the NYMEX briefly touched $100 per barrel, a move expected by traders for weeks. Oil moved higher as the dollar weakened today, but it was violence in oil producing Nigeria that really stoked the move. After briefly touching the psychological $100 milestone, oil slid back to finished at $99.62 per barrel, up $3.64.
Closely-watched weekly U.S. inventory data will be reported Thursday morning. Analysts expect a decline in crude supplies of 2.7 million barrels. Anything greater than that could cause a continued rally in prices.
Dan Yergin: "The market is responding not just to the fundamentals of a tight market but to real fear about what might happen to supply in the next couple of months. Through the winter, we're going to have a market that's going to be vulnerable on the upside."
"It really depends on global politics. An unwinding of Pakistan throws open a whole host of questions about the Middle East and about the world. Certainly, the attacks in Nigeria reflect an escalation in the level of violence there."
Yergin is CNBC's global energy analyst. Nigeria was the the fourth largest supplier of oil to the U.S. before supply interruptions, and it is responsible for as much as 10 percent of OPEC output.
Yergin said the catalyst for oil's recent run was the assassination last week of former Pakistan prime minister Benazir Bhutto, front runner for prime minister in upcoming elections. "Then there was a series of events...You have the financial markets operating on expectations of the risk of disruption," he said.
Yergin said his firm Cambridge Research has a target average price of $86 per barrel for the first quarter and $79 per barrel for the year. For now, he says he is sticking with that forecast.
John Kilduff, senior vice president at MF Global says record high oil prices will result in record gasoline prices in the near future and that could hit the U.S. consumer. He also said he expects oil to hold onto gains for awhile but that it is likely to stage a reversal in the not too distant future.
"We're going to go through $100, not just to $100. It's the beginning of the end. There could be a full quarter of these very high prices, but I don't see how demand and the global economy can support it, particularly with everything else going on--with the credit situation and the consumer in the United States getting worn down," said Kilduff, a CNBC energy expert.
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