Crude hits record $100! No longer a question!

This shocking headline came over the news feed this morning:

“The fastest-growing bet in the oil market these days is that the price of crude 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 in the past two months to 5,533 contracts, a record increase for any similar period. The contracts, the cheapest way to speculate in energy markets, appreciated 36 percent since early December as crude futures reached a record $100.09 on Jan. 3.”

The continued bull market is in energy. According to the International Energy Agency, the world must spend $20 trillion to meet surging, global energy demand.

Oil prices hit $100 US a barrel for the first time Wednesday, driven by geopolitical tensions, a falling U.S. currency and insatiable global demand for commodities.

“This is an important psychological number,” said Rick Mueller, an analyst with Energy Security Analysis in Wakefield, Mass. “Everyone has been expecting this since early December.”

On the New York Mercantile Exchange, oil shot up $4.02 a barrel to touch $100, before closing at a record of $99.62.

While triple-digit crude will bolster the bottom line of local energy companies and the provincial government, it could leave consumers nervous about what they’ll pay at the pumps.

Local gasoline prices rose at some stations Wednesday, although energy experts say sudden and significant changes in fuel prices are unlikely a direct result of the new benchmark.

“I don’t expect much of an immediate impact,” said Michael Ervin, president of Calgary energy consultancy MJ Ervin & Associates, which tracks gasoline markets.

“A hundred dollars is just a milestone; it’s not a significant change from where prices have been trading at for the last several months.”

However, a number of Calgary gas stations began raising prices to $1.059 a litre Wednesday, although CalgaryGasPrices.Com – a website that tracks fuel prices – showed average pump prices were up marginally.

University of Calgary economist Frank Atkins added that if oil prices were to hover around $100 US a barrel for several months, gasoline prices would eventually creep up.

“If it stays there until spring, when the driving season picks up, then you’ll see it at the pumps,” Atkins said.

“It’s going to have to stay in the $95 to $100 range.”

Oil’s stunning rise into $100 territory has been fuelled by jitters about geopolitical instability after the assassination of Benazir Bhutto in Pakistan and escalating violence in Kenya.

There are also lingering worries about unrest in Nigeria, one of the world’s biggest oil producers.

“These prices are here to stay,” said Emil Pena, member of the advisory board at Calgary-based Genoil and executive director of the Energy and Environmental Systems Institute at Rice University in Houston.

“We have to come to grips with these high prices. I hope this will lead to us becoming more efficient and increase our energy education.”

Patricia Mohr, a commodities analyst with Scotia Capital in Toronto, said oil’s rise above $100 is inevitable, given growing demand for energy in India and China, combined with the fall in the U.S. greenback, which continues to test new lows.

Last month’s decision by OPEC not to increase production further tightened supply, Mohr added. “That really set up the market to move higher,” she said. “I do expect prices to stay very high.”

Crude’s climb has been nothing less than meteoric over the last decade after rebounding from just $10.35 on Dec. 21, 1998.

Oil posted its largest year-over-year gain in 2007, averaging $72.30 a barrel, and Scotia Capital is expecting it to average $90 this year.

That would put prices within the range of inflation-adjusted highs set after the Iranian revolution in the early 1980s. Depending on how the adjustment is calculated, $38 a barrel then would be worth $96 to $103 or more today.

Energy analyst Steve Calderwood, with Raymond James in Calgary, said record high oil prices are “necessary” to determine the point at which demand begins to crest and level off.

Until then, prices have nowhere to go but up, he suggested. “We absolutely need this market to go higher to see where that demand destruction is going to be,” he said. “Until we reach that point, it’s difficult to predict what the peak oil price is going to be.”

Wednesday’s price surge sent shares of Canadian oil producers soaring in Toronto, with the main index rising 93.70 points to 13926.76.

Talisman Energy climbed nearly four per cent to $19.08, while Nexen added 66 cents to finish at $32.76. Canadian Natural Resources, which is constructing the massive Horizon oilsands project north of Fort McMurray, gained $1.57 to $74.15.

Despite the rosy outlook, oilsands developers took Wednesday’s price increase in stride.

The day-to-day gyrations in the marketplace pale compared to the time and effort it takes to bring a fully functional oilsands plant online, said Richard Gusella, president and CEO of Calgary-based Connacher Oil and Gas. “We’re looking at a 25- to 40-year life on this stuff, so what happens on any given day only matters on that day,” he explained.

In the field, local service companies are hoping high crude prices will offset reduced natural gas activity this winter.

Art Dumont, president of Technicoil Corp., said his company is looking for a better year from servicing heavy oil wells, particularly in eastern Alberta and western Saskatchewan.

“Natural gas is a mixed market, but shallow heavy oil is something we can expand on,” he says. “I think (we) will have a pretty good year.” The Alberta government also stands to collect more revenue from oil royalties if the high prices remain.

Severin Borenstein, director of the University of California-Berkeley Energy Institute, said increasing crude prices are felt in many areas of the economy. “Everything relies on transportation and fossil fuels. The retail sector. The building sector,” Borenstein said. “It’s not just fuel. It’s everything we do.”

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