Oil Likely to Hit $100 Soon--And Then Keep Going

For oil, passing $100 a barrel could be just another milestone as it continues its unprecedented climb.

Despite Wednesday's pullback below $96, analysts see crude surging well past $100 soon, pushed by continued a weakening of the dollar and demand from emerging markets.

Oil Pump
Oil Pump

"There's just no end in sight," John Kilduf, energy analyst at Man Financial, said on CNBC. "I am not in the camp that we're going to $100 and stop. I think we're going to keep going. There's no reason for it not to keep going."

As economies in nations like India and China have grown, so has the demand for energy to power the new factories and office complexes that have sprouted up in those countries. China, in fact, is set to overtake the US as the world's top energy consumer by 2010, the International Energy Agency said Wednesday.

Adding to the pressure on prices is the decline in the dollar, which makes crude cheaper for other countries and boosts demand, as well as low refining margins and European production problems.

Speculators who are continuing to bet up the price and are buying even at skyrocketing prices round out the picture.

"You might just have a market where it's going up and nobody wants to sell when it gets wild like this," said Mark Schultz, chief analyst and senior vice president at Minneapolis-based Northstar Commodity. "They don't want to get in the way of it. The attitude is, we're going to 100."

Of course, if the global economy starts to slow, that could drive prices back down again.

"Don't be surprised at how fast something can get high, and don't be surprised at how fast it can come right back down," Schultz said.

Still, Schultz said his firm thought the current bull market would stop at $96 a barrel. But now that oil has broken through that

barrier, Northstar sees the current spike running all the way up to $111 a barrel in what likely will be a highly volatile market.

"As you get higher, all you do is raise the volatility of these markets, where a $2 a day fluctuation is normal," he said. "What really becomes the bigger point of concern is can the economy globally continue to sustain (itself) if oil does get to $110, $111."

And consumer demand isn't likely to slow even as gasoline prices starting rising past $3 a gallon.

"Hundred-dollar oil is not going to affect consumers any more than $50 or $60 or $70 did," said Jerry Castellini, president of Castleark Management. "They're going to consume a little bit more in oil and a little bit less in other areas of retail. But look for oil to continue after maybe a pullback here to ride right into the hundreds next year."

The current run in prices gets oil near the inflation-adjusted record of $101.70, reached in 1980 when large producers Iran and Iraq went to war, creating a global energy crisis.

The IEA warned that oil could soar to an inflation-adjusted $159 in 2030 if demand runs higher than currently expected.

"We are experiencing high oil prices today, and if actions are not taken in years to come, we can see a supply crunch, which is not good news for anybody and it may end up with very high prices," IEA Chief Economist Fatih Birol told Reuters.