Oil might go up to $149 a barrel this year, a senior analyst expects, exploring various scenarios that might arise from the on-going economic recovery, which has seen oil clawing its way up from a low of $31 a barrel following the economic crash of 2008.

In his study, shared with Emirates Business, Humam Al Shamma, financial analyst at the Abu Dhabi-based Al Fajer Securities, a key UAE stocks and investment firm, said the International Energy Agency's warning that the oil price rising above $80 a barrel threatens the global recovery is inaccurate.

The currently promoted arguments, which are based on the notion that oil price rise might damage the economic recovery, are meant to prompt some big oil producers to oppose higher prices and even to take measures to counter this trend, says the study.

Such arguments, said Al Shamma, are based on a narrow view of the interests of consumers, and often emanate from a political position.

The main factor behind the oil price rising to $86 a barrel last week is a result of the expected global economic recovery, a phenomenon that has affected oil as it has affected everything else, the analyst said. Oil, he pointed out, is still the most important commodity globally and the prime mover of the international economy.

He said: "Perhaps the historical phenomenon observed in the oil market is that the highest price it reaches at a certain time – before going down again – is always the target where it stabilises later. The oil price hitting $140 in July 2008 indicates that the price will return to that level sometime this year or the next year, in all probability.

"This is because most countries around the world rely on oil in the mix of energy consumed in their economies, which makes the demand for oil closely linked to economic growth."

The downturn and the subsequent recession did lead to a lower oil demand, but the revival, especially in the latter half of this year, will change the nature of global demand, he said.

"It must be remembered," said Al Shamma, "that the demand and supply for oil plays a key role in determining prices. No doubt, the excessive oil supply throughout 2008 was the reason for the low price in the second half of the year when the crisis broke out and speculation failed, but the price rebounded in 2009 after demand became bigger than supply. Of course, the average price for the first half (West Texas) was $50.6, which is lower than the average price of the second half, or $72.1, because the supply-demand gap was 1.5 million bpd, while the gap in the second half was 3.85mbpd, which explains the rapid rise in prices in the second half."

US job, Asian trade fuel demand

Recent statistics on the labour market in the United States, which reported the creation of 162,000 new jobs in March, led to a wave of optimism, which in turn has been reflected in the price of oil, with the commodity reaching its highest price level in almost 18 months, said the analyst.

The recovery of the world economy seems set to accelerate in the coming quarters of this year, as exports rise on the back of rising global demand, especially from Asian countries, notably China, which has become the largest trading partner of Japan.

Al Shamma noted that oil demand for this year, based on the projected growth, might exceed the supply from outside Opec (Organisation of the Petroleum Exporting Countries). This will make the prospect of rising prices exciting for strong speculation that would be consistent with changes in the rates of major currencies, the dollar and the euro.

"It is clear that currently there is a gap in the total supply of oil during the first quarter of this year, along with expectations of scarcity of supply in relation to the expected global demand," he said.

"The security situation in the region, in addition to speculation by some brokers in most of the global exchanges, reflect on the price of oil, and there is an important factor that we should not overlook, which is the impact of the futures selling market.

"Oil, like other commodities, has futures markets that take into account what prices can be [later]. Buyers race to buy now at future delivery prices, which they expect to be less than the prices that would prevail during delivery. This factor raises prices when expectations are positive and vice versa – it works to deepen the decline when expectations are negative."

No doubt, says Al Shamma, oil prices will stabilise at $90 by the end of the second quarter and may surpass the $100 barrier after the first half of the year to reach $149 again.

No return to recession

The question is: what is the impact of a rise to $100, even if it is not sustainable? "The answer is," the analyst said, "when the price of oil rose in the summer of 2008, there was a negative impact, though marginal, because economic growth was still strong enough.

"But at this time, the buds of the global economic recovery are still young. Also fears are still high, especially if the financial incentives [offered by governments] are withdrawn, which will lead to slower growth. But this does not mean a return to recession, [an idea] which some like to promote by saying that high oil prices will not help since the economy is still fragile.

"However, reality indicates that developed economies [now] rely less on oil in comparison with how much they used to before. Therefore, the inflationary impact will be containable, although oil prices in the US account for 0.8 per cent of inflation.

"But the strong influence of high oil prices comes from the taxes on petroleum products, which deepens the impact of high crude oil prices. It is true that this will negatively affect consumer demand. But at the same time, the tax revenue will also increase, which may help support many sectors. This emphasises that the arguments about likely damage to the economy by high oil prices are not objective."