Brent crude oil prices climb above $123 while Nymex crude above $110

World oil prices stayed above multi-year highs Fri 8 Apr 2011, supported by the continued tensions in the Arab world and the postponement of elections in Nigeria, Africa's biggest oil producer. NYMEX crude oil prices for May 2011 delivery rose 55 cents to $110.85 per barrel after touching the highest level in two-and-a-half years in US trade. Brent crude oil prices for May 2011 gained 38 cents to $123.05.

The market has been under pressure by tensions in the Middle East and North Africa region, where long-time rulers are under threat by uprisings similar to those that deposed the leaders of Tunisia and Egypt. Libyan leader Muammar al-Gaddafi is battling to remain in power, with rebels controlling large parts of the country. Gulf states have also piled pressure on Yemen's embattled President Ali Abdullah Saleh, saying they expect him to quit following more than two months of bloody protests. The IMF warned that crude demand is outpacing the growth of global supplies, a situation that would lead to sustained higher prices over the long term.

With the price action going on for the past couple of months, $100 is now acting like a floor for NYMEX oil prices. In the recent past there has been talk that prices above $100 would bring about another 2008-like economic catastrophe but this time round the conditions are slightly different. The arguments regarding "speculators" are strangely muted in the mainstream nowadays - what we hear is plentry of concern about geopolitics.

Heading above $107, NYMEX oil prices are definitely in "breakout" territory, and Brent oil prices above $120 are simply perpetuating the continuing spread between the two. Expectations are high for NYMEX to break above $120 but from there on, opinions vary. There are those who say that it will easily break the current standing record of $147.27 per barrel, while others are on record as saying that $120 is the barrier beyond which the world economy will go into another downturn again.

My take is that with the ongoing dollar weakness and geopolitical situation, amongst other factors, the price could well be driven by the momentum crowd, followed by a short pullback and stabilization, base-building for what could be yet another record-breaking run. Not very much of a specific prediction but that is the current "feel" of the situation as could be glimpsed from trawling through all the chatter going on out there. Of course as usual, we shall see.

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