RIYADH, Jan 12: With the $100 a barrel era already on our horizon, the fastest-growing bet in the oil markets these days is that crude price will double to $200 a barrel by the end of the year.

Options to buy oil for $200 on the New York Mercantile Exchange rose 10-fold over the past two months to 5,533 contracts, a record increase for any similar period, a Bloomberg report said.

The contracts, the cheapest way to speculate in energy markets, appreciated 36 per cent since early December as crude futures reached a record $100.09 on Jan 3.

Oil prices will continue to rise -- reaching $150 within five years -- as delays in bringing on new supply from mega-projects widen a global supply gap, CIBC World Markets predicted.

Estimates for oil production by 2012 by the US Department of Energy and the International Energy Agency overlook rising depletion rates and an increasing number of project delays, economist Jeff Rubin said in the report released on Thursday.

An analysis of nearly 200 new oil projects around the world slated to start up in the next five years shows “scheduled production timelines are far too optimistic,” the report added.

Crude oil at $100 a barrel would still be “pretty cheap” because global oil demand shows no signs of abating and new energy sources are in short supply, Matthew Simmons, the most vocal proponent of Peak Oil theory insisted, dismissing the idea that a looming US recession will tame crude prices.

"Demand is far more durable than anyone ever thought,” Simmons added. “We're on an insatiable growth curve. One hundred dollars a barrel is actually 14.9 cents a cup, so we're still talking about oil being remarkably cheap,” said Simmons.

While analysts at Merrill Lynch & Co. and UBS AG still insisting the slowing US economy will lead to the biggest drop in prices since 2001, the options show some traders expect oil to rise for a seventh straight year.

World consumption will rise to 87.8 million barrels a day this year, 2.1 million more than in 2007, or about the same amount that Nigeria supplies, according to the Paris-based IEA.

Demand from China alone will increase 5.7 per cent to eight million barrels a day as imports expand to support an economy that's likely to grow 11 per cent, the IEA said.

The transformation of the crude markets has been rapid. On Dec 10, 1998, crude oil futures settled at a low point of $10.72 on the New York Mercantile Exchange. However, the situation began to change early 1999 when Hugo Chavez became President of Venezuela.

With Saudi Arabia no more ready to play the ‘swing producer’ role, markets appeared weak and helpless.

Chavez realised the importance of enhancing coordination and promised better co-operation and greater compliance with the output quota. And thus when in March 1999, Opec ministers agreed to cut production again, the cartel stayed in sync. Prices began to climb and closed the year above $25.

Almost simultaneously, financialisation of the oil markets also started to impact the crude markets. With the structural changes, it became a lot easier to buy oil on paper.

The New York Mercantile Exchange started round-the-clock electronic trading of its main crude benchmark in September 2006 and improved access to previously restricted energy trading markets. Financial institutions created new vehicles for making bets on the price of oil without having to manage futures holdings.

All of this helped attract a flood of new money transforming oil trading. Oil markets were once dominated by physical traders – firms that needed to take delivery of the crude oil to run through refineries or trade with partners. The new market entrants, however, had no interest in ever taking delivery of a barrel of oil.

New money came from hedge funds seeking profits in sharp oil-price moves, pension funds seeking diversification and a hedge against inflation, and Wall Street commodity desks helping financial investors make sophisticated bets and risking their own capital.

The number of oil-futures bets outstanding on Nymex has thus quintupled since 2001. Because oil has been rising at the same time, the dollars at stake in the main oil futures benchmark, not including options, rose from roughly $US7 billion in 2001 to more than $US145 billion, calculates Ben Dell, energy analyst at Sanford C. Bernstein & Co.

As this surge of money chased a slowly growing number of barrels, prices sprinted upwards.

Market norms have changed. It is no more just the empirical demand-supply equation controlling the market prices. There are factors much beyond the fundamentals, impacting the market. And here Opec has a point too.