The price of oil reached $100 a barrel last week during the first day of trading in 2008. The cost of crude reached $100 for the first time since it rose by over 58% in 2007, ending the year at $87 a barrel, up from an average of $50.79 the previous January.
On Thursday oil prices stayed just below $100 as fighting in the oil-rich Nigerian city of Port Harcourt earlier in the week restricted supply from the region. Output from the country fell almost a quarter after an attack by militants in which at least 12 people were killed. The political unrest this week in Kenya in the wake of December’s controversial presidential election also added to the perception of instability in the region.
The Organisation of the Petroleum Exporting Countries (Opec) has warned that it is powerless to prevent the continuing price increase, claiming that the issue is not related to supply. The weak dollar and strong demand from emerging markets such as India and China have continued to put upward pressure on the price of the fuel and analysts have warned that the trend is likely to continue.
Data from the Investment Management Association shows net inflows of £166m into commodities funds in October alone, while property funds had net inflows of just £48m over the same period.
Ian Henderson, manager of the £1.1 billion JP Morgan Natural Resources Fund, says that “people are understandably cautious about the property market at the moment”.
“It’s hard to find other areas [outside commodities] that I really want to buy into at present,” he says.
Henderson adds that while the commodities market still has room for growth in areas such as oil and coal, financial markets as a whole do not look as though they will perform well in the coming year.
“You’ve got to be much more selective in 2008 than you needed to be in 2007,” he warns.
Analysts at Goldman Sachs have predicted that crude prices in 2008 will average $95 a barrel and could hit $105 by the end of the year.
Other banks, however, have issued more conservative estimates, with Lehman Brothers predicting a year average of $84 a barrel and Morgan Stanley expecting an even lower average of $80.