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Oil price: the US$ 100 barrel on its way?

Markets are coming within sight of the US$ 100 barrel as global supplies and geopolitical concerns come to bear on oil prices.

A surge in crude oil prices in the wake of last week's drop in U.S. inventories, coupled with geopolitical tensions in the Middle East, will make this a nervous week for consumers, oil traders and economists.

Crude oil climbed above US$ 93 a barrel for the first time on Monday, extending this month's increase to 16%.

The new business week began with oil opening up at just under the US$ 93 per barrel mark it breached on Friday. 

Traders and analysts see immediate factors behind the price surge, such as geopolitical concerns in the Middle East and the sliding U.S. dollar, coming against a background of a tight supply demand balance and increasing global demand.

“Demand for oil is still very high and this is one of the key factors. The Chinese economy is still growing by more than 10%. This is obviously something that is sustaining the demand for oil at a rather high level. On the other hand you also have the effect of geopolitical concerns over the situation in Iraq and this is also a short-term factor that will, I think, continue to drive oil prices towards the US$ 100 per barrel mark,” commented Yaroslav Lissovolik, Chief Economist at Deutsche Bank in  Moscow.

For Russia the increased price for the commodity, which makes up two thirds of its exports, needs to be balanced against the possibility of a long-term price drop, particularly with speculation adding to the price surge and the risk that climbing prices could themselves trigger a slowdown in global economic growth.

“The oil price is very high and this affects political events and some speculations. But if we talk about the longer term of 15 to 20 years, for which we've planned the economy, a more realistic price would be between US$ 50 and US$ 60. I say this because if the price goes too high, it will slow down economic growth and also spur the use of alternative energy sources,” forecast Aleksey Kudrin, Russian Deputy Prime Minister.

Analysts don't see a sharp drop any time soon, but they do see the likelihood of a longer term fall.

“From now until Christmas, I think, we are going to see levels of oil prices roughly between US$ 90 to US$ 100 per barrel,” added Yaroslav Lissovolik.

So as oil consumers bear the brunt of a price spiral which could see US$ 100 per barrel in the short term, with traders warily eyeing tensions in the Middle East and inventory data from elsewhere, economists are looking for longer term effects which could still see a reduction in demand and price.