London, 24 February 2011

Oil could hit a new record above $150 per barrel if unrest were to spread further across the Middle East, the head of one of the world's biggest independent energy trading house said on Wednesday. Marco Dunand, chairman and co-founder of Swiss-based Mercuria Energy Group, said prices could easily jump back towards the record highs seen in 2008 "and potentially even higher if we had a major crisis".

"I don't want to over-hype things, but there are scenarios under which (crude oil) could go above $150 without a doubt, and those scenarios are to do with stability in the Middle East if things start spreading," Dunand told Reuters in an interview.

"The risk of our forecast is on the upside, and there's a possibility that we may see $150 within the next few months. But I would give it a 20 percent possibility." Crude oil prices rose above $147 per barrel in July 2008 as worries over a potential shortage pulled in a wave of new investors.

Prices subsequently plunged as recession took hold but have since recovered. North Sea Brent futures hit $108.70 this week, their highest since September 2008. Markets are riding up on worries over the security of supplies from the Middle East and North Africa, which pumps around a third of the world's oil, as unrest sweeps through the region.

Dunand said he thought the potential equilibrium price for crude oil was close to $100 per barrel, "between $90 and $110". For a graphic on unrest in the Middle East and North Africa.

http://graphics.thomsonreuters.com/11/02/MiddleEast.html

UPSIDE RISK

"The risk is on the upside because of the hotspots of uncertainty created around the globe," he said. "We could easily see a spike back towards the highs we have seen and potentially even higher if we had a major crisis."

Mercuria is one of the five biggest independent energy traders and operates in more than 50 countries. Dunand said the revolt in Libya was having a serious impact on oil because its oilfields, which export around 1.3 million barrel per day (bpd), were close to European markets.

Libyan ruler Muammar Gaddafi is struggling to crush a revolt against his 41 years of rule in Africa's third-largest oil producer. Italy's Foreign Minister said on Wednesday up to 1,000 people had been killed in the Libyan unrest. "Of the various countries that we have seen so far going through turmoil, Libya is the one which could maybe have the most impact," Dunand said. "It only takes a very short time for Libyan oil to come into the Mediterranean refiners.

"Whether you could have production halted for a few hours, or a few days, or possibly longer is anybody's guess. There is now a risk of greater volatility," he said.

"I think we are going to ride into a volatile and potentially dangerous situation over the next few months." Dunand said unrest elsewhere in the Middle East was also a concern, particularly the turmoil in Bahrain, which is opposite Iran and close to the Strait of Hormuz.

"It is very difficult to know how things can escalate. The perception for the time being is that the Middle East is a little more stable than North Africa. But can anyone say for sure that there will be no problems there? Obviously not." Dunand said the potential for price rises had been increased by heightened interest in oil and commodities from investment funds, which traditionally only looked at other classes of assets such as equities, bonds and money markets.

Of the $50-$60 trillion invested in the world's big financial markets, perhaps only 1-2 percent, was now in oil or commodities, he said. But this could change.

"All you need is investors in general to say, 'we need to hedge our portfolio against inflation, tension in the Middle East' ... and suddenly you have $100 billion coming into commodities trying to find a way to buy. And obviously there aren't sellers of that kind of size."

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