NEW YORK/LONDON Brent's four-day rally above $120 (73.79 pounds) a barrel will soon fizzle out, a majority of traders and analysts say. But it will roar back above $130 a barrel in the second half of this year, with no end in sight to the unrest in the Middle East and North Africa.
That's the scenario most commonly foreseen by 32 major oil traders, bank analysts and hedge fund managers surveyed by Reuters since Monday in a poll launched after Brent jumped by above $120 a barrel for the first time since 2008, rising almost $8 over the past five days.
Almost two-thirds of those polled said Brent will soon fall back to trade below $120 by the end of June, with some calling for prices to fall back towards $100 by the end of the quarter. But any correction is likely to be short-lived.
"There are a lot of uncertainties in the market right now," said Fadel Gheit, managing director at Oppenheimer & Co in New York.
Gheit forecast prices wouldn't rise above $125 this quarter, but could hit $135 near the end of the year.
"Global tensions are likely to support oil for now, but in time prices above $120 for Brent and $100 for WTI will undoubtedly slow global economic growth."
Traders said the rally is starting to look overdone. With the loss of Libyan output now priced into the market, investors are increasingly wary of chasing prices higher. No clear threat to other Middle East supplies are on the immediate horizon despite simmering unrest in the region. Only three of those surveyed expect prices to top $130 this quarter.
Still, more than one-half those polled expect Brent to rebound above $130 a barrel at some point in 2011, with one in five predicting prices will reach a record $150 a barrel by the end of the year.
Hedge fund manager John Kilduff in New York was the most bullish forecaster, expecting oil prices to soar above $175 a barrel in the third quarter, arguing weakness in the dollar would also drive more and more investors into hard assets.
On the other end, Oil Outlooks President Carl Larry, who called the return of $100 plus crude early in 2010, now sees prices dipping below $100 by the end of June before rebounding back towards $125 in the fourth quarter.
"There is a lot more risk than reward to thinking oil can follow through to the end of the year," said Larry, arguing that slowing demand would temper oil's rise in the short term.
Brent crude traded on Wednesday as high as $123.00 a barrel, the highest since August 2008, when prices were crashing from an all-time peak of $147.50 on the eve of the financial crisis. Prices eventually dropped as low as $40 a barrel in just five months.
Oil should trade between $105 and $115 by the end of June, most respondents said. Only three out of 32 saw prices remaining between $120 and $125, while eight believe prices will continue to rise through the quarter.
In eight out of the last 10 years, Brent prices have risen in the second quarter, as refiners normally increase production ahead of the summer driving season.
DO FUNDAMENTALS MATTER?
Sarah Emerson, president of Energy Security Analysis Inc in Boston, said traders have been spooked by events in North Africa and the Middle East, with more than 1.5 million barrels per day of Libyan crude already out of the market.
"The combination of seasonally rising crude demand and marginally less light sweet production (Libya) will keep the pressure on Brent, even though the overall global fundamentals do not warrant a price over $100," she said.
Emerson predicted prices would rise above $135 this quarter.
Others said investors were growing wary, with volumes down sharply since the start of the month.
Downside risks could come from tighter monetary policy in China, the centre of oil demand growth, or a rebound in the U.S. dollar.
Higher prices are also starting to weigh on demand in the United States, the world's largest oil consumer.
Retail gasoline sales over the last four weeks were down 1.4 percent year on year, with average prices now above $3.60 a gallon, MasterCard reported Tuesday.
Daniel Hwang at Forex.com in New York said prices were unlikely to rise far above current levels for long.
"The panacea for higher oil is likely to be higher oil itself."
(Writing by David Sheppard in New York; additional reporting by Florence Tan and Li Peng Seng in Singapore, Jeffrey Kerr and Selam Gebrekidan in New York; editing by David Gregorio and Jeffrey Benkoe)