Crude oil prices near 2010 trading highs, where next?

Crude oil prices have rallied to within sight of 2010 trading highs this week, whilst the US dollar remains strong, where next for oil prices?

The contrast between the US Light oil price, which topped $83 a barrel on Wednesday, and signs of weak physical markets might preoccupy OPEC when it meets on March 17th and raise the issue of whether markets have too much oil.

“If you get on the ground and look at the fundamentals, you see too much crude oil production by OPEC,” said Paul Tossetti, senior energy adviser at PFC Energy.

“Anybody who still believes that oil futures prices are a reflection of the true state of the physical market is living in a time warp,” said David Hufton of oil brokers PVM.

Latest data showed that US crude oil inventories climbed by 1.4 million barrels, which undershot analysts’ consensus forecast for a 1.7 million barrel gain. “It was largely positive but … you’re always going to have some profit taking especially while things in Europe and the US still look pretty sluggish,” said Ben Westmore, an energy economist with the National Australia Bank in Melbourne.

David Greely, of Goldman Sachs, anticipates global inventories will keep falling, changing price spreads and lifting crude into the $85 to $95 a barrel range in the second half of 2010.

“The increased growth in 2010 oil consumption supports a firming of crude oil prices at above $80 per barrel this summer and accommodates a further drawdown of commercial oil inventories,” the EIA said.