Oil Futures Hits 2-Year High over $90 per barrel – Forecast to $120 in 2 years

Crude Oil Futures Increase to 25-Month High in New York as Dollar Tumbles

By Margot Habiby and Mark Shenk - Dec 3, 2010 3:59 PM ET

Crude oil rose to the highest level in 25 months as the dollar tumbled, boosting the appeal of commodities as an alternative investment.

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Fuel Consumption

U.S. fuel consumption decreased 1.8 percent in the week ended Nov. 26 to 18.5 million barrels a day, the lowest level since the seven days ended Oct. 15, an Energy Department report showed this week. It was the third weekly decline.

“When the market doesn’t sell off on bearish news, it shows that there’s some sort of internal strength there,’ said Matt Smith, a commodities analyst for Summit Energy in Louisville, Kentucky.

The Institute for Supply Management’s non-manufacturing index, which covers about 90 percent of the economy, rose to 55 in November from 54.3 a month earlier. A reading higher than 50 signals growth.

Crude oil extended gains, touching $89.33 a barrel in intraday trading after breaking technical support at $88.63, the high from Nov. 11.

“Some of this is just ongoing bullish market sentiment that was only briefly influenced by the employment report,” said Tim Evans, an energy analyst at Citi Futures Perspective in New York. “The softer U.S. dollar is a focus, although that has been a real argument of convenience. We’re not applying it in any sort of consistent way.”

$120 Oil

Oil will advance to $120 a barrel before the end of 2012 as consumption grows in emerging economies, according to a report today from JPMorgan Chase & Co.

Crude futures in New York will average $93 a barrel next year, up from a previous estimate of $89.75, and Brent crude traded in London will average $95 a barrel, compared with an earlier assessment of $91.75, the bank’s analysts forecast.

“Strong emerging oil demand growth over the next 24 months is very likely to lift the call on OPEC production to levels last seen at the peak of the oil price spike in 2008,” analysts led by Lawrence Eagles in New York said.

The Organization of Petroleum Exporting Countries, which is responsible for about 40 percent of global supplies, is unlikely to increase production in the first half of next year unless prices surge through $100 a barrel, the analysts said. OPEC oil ministers meet Dec. 11 in Quito, Ecuador.

Brent crude for January settlement on the ICE Futures Europe exchange in London gained 73 cents, or 0.8 percent, to $91.42 a barrel. Earlier, it reached a two-year high of $91.85 a barrel.




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