Crude oil may test $100/bbl level by 2011

Crude oil is likely to go past the $90 a barrel on rising demand from China and expectations of a decline in global inventories in 2011.

This would be the first time since 2007 that the commodity would top the $90 mark.

Brent crude prices are holding at around $87/bbl despite a weak euro, a jump in spreads for Spanish and Italian sovereign bonds and declines in the Asian markets.

The Opec output has fallen slightly in November at around 29 million barrels a day since last August.

Brent crude futures, which rose more than 20 per cent between August 24 from $74.09 to $89.10 a barrel on the IntercontinentalExchange Inc, has been trading towards the mid-point of the newly established $80-90/barrel level.

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A test of $100/barrel of oil is expected in the first half of 2011, indicate oil analysts across the globe.

An official from one of the largest refineries in the country said: "Crude oil led the rally in commodities prior to the 2008 crash.

However, after that while most metals are at their peak, crude oil has been laggard. As demand was affected due to reduction in refining capacities after the crisis, lower refining margins only added to that."

"Huge liquidity chasing commodities as well as some demand push can lead to higher crude oil prices. Till that happens profit booking keeps happening at higher levels," he said.

Analysts, however, have started turning bullish on oil off late.

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Generale SA, France's second-biggest bank, raised its forecast for Brent crude oil prices in 2011 to an average of $93.10 a barrel - up from the previous forecast of $85 - because of rising demand of fuel from emerging markets such as China.

The bank estimated oil demand growth in 2011 to 1.6 million barrels a day from 1.4 million now.

The increases in consumption will cause oil inventories of the countries in the Organisation of Economic Cooperation and Development (OECD) to fall to 56 days of cover by the second half of 2011 from 60 days now.

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Rising demand will reduce the spare production capacity held by the Organization of Petroleum Exporting Countries (OPEC) to three million barrels a day by 2013 from 5.5 million barrels this year.

The November Oil Market Report from the International Energy Agency (IEA) is hinting at improved fundamentals in the oil market primarily due to stronger-than-expected Q3 OECD demand.

In the light of an improved market balance and the risk of a double dip for the global economy, forecasts for oil prices for Q4 as well as for 2011 has been raised.

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While demand has been a global concern in the recent past, according to industry officials, India continues to be a major consumer of crude oil and despite an increase in oil exploration in the country, demand will go up as new refining capacities are being operationalised.

However in China imports have fallen in October.

Headline crude oil net imports fell 32 per cent to 3.87 million barrels per day, compared to September which was the lowest in 19 months.

In the futures markets, ICE Brent crude futures for February deliveries are trading above $87 on a long build-up ahead of the winter season.

The market picture chart (MKTP) is hinting at price levels of $89-90 in the coming weeks.