RIYADH, May 3: Lack of investment in adding new production, weakening dollar and consequent flow of funds into commodities, including crude, are keeping oil markets boiling, with many now projecting markets to scale even newer heights.

The price of oil is likely to hit 150 dollars a barrel by 2010 and soar to 225 dollars a barrel by 2012 as supplies become increasingly tight, CIBC, a Canadian bank, said in a report released last week.

“Despite the recent record jump, oil prices will continue to rise steadily over the next five years, almost doubling from current levels,” the report emphasised.

The CIBC also noted that while production increases are at a virtual standstill, global demand is continuing to grow.

Energy analyst Boone Pickens predicted last week that oil will be $150/bbl by the year end, blaming lack of spare capacity as a major source of turbulence.

A recent Deutsche bank report released earlier also points to the “huge risk” that oil prices will continue to rise until demand collapses as additional supplies are limited and alternative fuels are decades away from replacing crude.

“There is a huge risk that the oil price simply continues to escalate until it gets to some level (possibly $250) when demand finally collapses because ordinary people can no longer afford to burn as much energy as they are burning now,” Deutsche Bank chief energy economist Adam Sieminski said.

Pointing to the reasons, the report underlined, “oil supply growth in non-Opec countries is struggling at a time when Opec has been cautious with its production policies”.

In order to analyse the situation closely, one needs to look at history too. In the early 1980s, oil demand collapsed only after nominal oil prices rose by a factor of 10 between 1970-73 and 1980-83, from about $3.50 a barrel to $35.

And based on the empirical example of factor of 10, Mr Sieminski deduces that since oil averaged about $25 a barrel from 2000-03, prices would have to increase to $250 a barrel in 2010-13 to have the same effect on oil users this time around.

Mr Sieminski continues to argue that strengthening of the dollar would take time to stem the flow of investment into commodities, and alternative energies, such as solar power or bio-fuels, are at least a decade away from contributing to energy supply.Information provider Global Insight says crude oil could peak in the US at $135 a barrel within the next two months.

Oil might rise to $135 as declining dollar draws investors seeking a currency hedge, before new supplies see prices fall, Global Insight’s Simon Wardell asserted.

Opec president Chakib Khelil also warned that oil prices could hit $200 a barrel and there was little the cartel could do to help.

Mr Khelil blamed weakness in the dollar and global political insecurity for the current market woes.

Establishing a direct relationship between the sinking dollar and the ascending crude prices, Mr Khelil claimed that with dollar losing one per cent of its value, oil prices rise by $4 a barrel and vice versa.

The markets thus continue to stay fired up, despite increased production from the Gulf oil heavyweights in the first two months of 2008, in an apparent bid to reverse a surge in prices. The move though had little effect on the markets.

The Joint Oil Data Initiative (Jodi) says Saudi Arabia upped its crude oil supply in January and February to one of the highest levels in many years. As per the data, the output of the world’s dominant crude supplier, Saudi Arabia climbed to 9.216 million barrels per day (bpd) in February and an average 9.205 million bpd in January and December.

The February level was the Kingdom’s highest production in more than two years and one of the highest in a decade.

The UAE also pumped 2.716 million bpd in February, up from around 2.700 million bpd in January.

The output was close to the country’s sustainable output capacity and is the highest since the Emirates began commercial crude exports in early 1960s.

As per the Jodi data, Kuwait also boosted its production, including from the Neutral Zone which it shares with Saudi Arabia, by nearly 200,000 bpd to a record high of 2.797 million bpd in February.

Iran pumped at maximum capacity of around 4.120 million bpd; while Qatar raised production to its highest ever level of 862,000 bpd in February.

Although no official figures for the month of March were available yet, but independent estimates showed Gulf crude output in March remained at the same high level as in February.

Stagnant production is definitely an issue; however, with the environment marked by lack of demand security, prospects of investment in the energy sector are getting dimmer. This could turn out to be the real disaster for this energy thirsty world, one could underline with a fair deal of certainty.