The price of crude oil is this week expected to make a renewed assault on the psychologically-important $US100 per barrel mark. Oil closed in New York trading early on Saturday at $US96.32.
US Federal Reserve chief Ben Bernanke, who is warning about a slowing US economy, has briefly put the brakes on the oil market but analysts expect it is only temporary.
Jim Williams, an economist with US energy research firm WTRG, expects the oil price to hit $US100 but then to fall sharply.
"There is a lot of speculative money in the market and it seems set on seeing $US100 a barrel oil," he said.
"If you look at the non-industry participants that are trading on the NYMEX exchange, they are in what's called a net-long position.
"In other words, they're betting on prices going higher.
"And the industry participants are short and betting on lower prices and so a lot of the speculative money is pushing this up.
"The underlying fundamental that'll really allow that to happen is that there is so little spare oil production capacity now compared to five years ago."
Recession talk
He says the thing that stopped oil from breaking through that $US100 a barrel threshold was Mr Bernanke's statement about the possibility of a recession in the United States.
"If you look at history, at least back 30 years or so, every time the United States has had a recession, there's been a dramatic drop in crude oil prices," Mr Williams said.
"So that took some of the wind out of the price sales, so to speak, and slowed things down.
"Whether that stays or not or goes back on its trend to hit $US100, but I think once it hits the $US100 it will go the other way."
He says it is a case of when, not if, that $US100 threshold will be reached.
"Then afterward the market will get a dose of reality and come back down considerably," he said.
He says when it does hit $US100, oil prices could then drop dramatically.
"I think $US80 is probably a reasonable number if the US economy muddles along, and $US60 is certainly possible," he said. © 2007 Australian Broadcasting Corporation
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