OIl Price racing past USD100 mark

• Oil may breach USD120/barrel by end of week
• Crumbling Eurozone may help to stabilise oil demand
• War in Iran will push oil to new record high

American motorists are now bracing for petrol prices to shoot up to as high as USD4 per gallon, breaking records set in 2008-2009 oil crisis when it peaked at USD 3.95 per gallon when oil was trading at USD125 per barrel.

Brent has been edging past USD115 for a few days while West Texas Intermediate is cooling off a bit as it edges just beyond US100. The gap between Brent and WTI prices are now at record levels indicating a serious concern about supply of Middle Eastern and other sources.

The Strait of Hormuz carries 20 per cent of the world's oil supply and Iran has promised to shut it down should Israel or it's proxies were to wage war on Persian soil.

With tension escalating between Israel and Iran and now apparent political will from the United States, United Kingdom or NATO to cool the situation, it is likely that supply from the Middle East and the rest of the world will be constricted and the US will be forced to extract more from its own fields and reserves.

The steady devaluation of the Euro may help to stabilise prices for a short while as the US dollar holds on to its value but this situation is also untenable as the American public debt continues to  baloon and it is expected to be inflated by a further few trillions if the US military starts moving into Iran.

While factors such as continuing bitter cold weather in Europe will continue to push Brent prices higher, the unusually warm US winter will help keep WTI prices on a more gradual incline, even so commidties outlooks tend to see continuing higher oil prices for the next few weeks.

Meanwhile economists are still grappling with the possible effects of the fast crumbling Eurozone, now that Moody's has downgraded Spain, Italy and Portugal and changed the outlook for the UK and France to negative.

As it stands, with tension in the Middle East remaining constant and the European winter continues to suppress the mercury, we can expect Brent to breach USD120 in about a week's time, if not by the end of this week.

Meanwhile WTI will follow in some of the vacuum of the Brent increase and rise to about USD105-106, maintaining the USD15 premium gap between the two grades of black gold.

If war breaks out between Israel and her proxies and Iran then all bets are off and we can expect oil, gold and silver prices to reach new records by June 2012 and once summer is in full swing we can make better forecast of where oil prices will go.

Although the Government has kept mum on fuel prices, Malaysians should expect some adjustments to be made, especially if oil persists above USD100 for more than one month.

In June 2008 we saw petrol price jump to RM2.70 and this put a lot of extra burden on the already shrinking take home pay that Malaysians have to endure as a result of the global economic uncertainty.

With this in mind, carmakers will do well to begin promoting less sexy fuel economy attributes of their vehicles so that people will get used to the idea by the time Malaysian petrol prices start going up.

The Government will probably do everything they can to keep petrol prices where it is until after the 2013 General Election.