Oil prices could rise to an all-time high above $150 a barrel this year, warns the world's largest independent oil trader, Geneva-based Vitol. The company specifically points to geopolitical risk in the Middle East (Iran) as the reason for the possible surge in oil from the current $120 (a six-month high) to $150 a barrel.
The oil market is currently trying to deal with oil output shortages in South Sudan, Syria, Libya and Yemen. Add to that a possible Iranian oil embargo and you have the situation described by Vitol's chief executive Ian Taylor: "The supply side is a mess."
With the global economy looking better too, demand - led by emerging markets such as China - is confounding the bears and continues to grow. This leaves a situation, in Taylor's words, where "it's difficult to see much price downside from current levels."
If oil prices even remain at current levels, it would mean that 2012 would set a record annual average price for oil. Brent crude oil, the global benchmark, averaged $109 a barrel in 2011, setting an all-time high above the previous average record of $98.40 a barrel set in 2008.
Vitol is not alone in its concerns about the geopolitical situation in the Middle East. The head of commodities research at Barclays Capital, Paul Horsnell, said in a recent note to clients that the risk of a supply disruption from Iran was rising, and warned investors not to bet on lower oil prices. Iran is the world's third-biggest oil exporter, behind only Saudi Arabia and Russia.
Unfortunately for some members of the eurozone that are already suffering from the debt crisis, any cutoff of Iranian oil will be a double whammy. The countries most exposed in the eurozone to a cutoff in Iranian oil are Greece, where Iran accounts for a third of oil imports, Italy and Spain. Out of the 450,000 barrels a day imported by the European Union, Italy buys 180,000 barrels of oil a day and Spain buys 140,000 barrels of oil a day.
Backing up the bulls' belief are two facts: First, global oil inventories are at the lowest levels since 2008, despite a mild winter in the United States. In addition, Saudi Arabia is already pumping out oil at nearly a 30-year high rate, calling into question whether the kingdom can really pump out much more oil to make up for production shortages elsewhere.
The purest play for investors on higher global oil is the United States Oil Brent Oil Fund (NYSEARCA:BNO), which tracks futures based on UK-based Brent Crude oil.