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Brace yourself: Oil hits another record high; Experts predict $100 a barrel next

NEW YORK — Crude futures rose to record levels on Friday — reaching $92 a barrel before settling at $91.86 — supported by worries over political tensions in the Middle East, where the U.S. imposed sanctions on Iran and Turkish troops remained massed at the Iraq board to counter Kurdish rebels.

The dollar fell to a record low against the euro on signs of climbing oil prices.

"There's nothing out there to stop oil from going to $100," said Chip Hodge, a managing director at MFC Global Investment Management in Boston. "There are plenty of bullish factors such as the continued dispute between Turkey and Iraq, the new sanctions against Iran and falling inventories."

"I think we are going to $100, if for no other reason than because there are some traders who want to say they took oil there," said Sarah Emerson, managing director of Energy Security Analysis Inc., a consulting firm in Wakefield, Mass. "When you get close to a psychological number, reaching it becomes a self-fulfilling prophecy."

The prediction of $100 a barrel oil echoes comments made last week by investor Boone Pickens, chairman of Dallas-based BP Capital LLC — but for different reasons.

Pickens said world oil output has already peaked, and prices surging to record highs above $90 a barrel are a sign of things to come. Global production has peaked at 85 million barrels a day, Pickens said in a recent interview. Oil will rise to $100 a barrel before falling to $80 again, he predicted. Earlier Pickens said crude would reach $100 by year's end.

"As this unfolds, you're going to have to find alternatives that are going to do the job that oil is doing," Pickens said. "Everyone is going to have to come to grips with this in the next two or three years. People are going to have to figure it out."

U.S. crude-oil supplies fell 5.29 million barrels to 316.6 million barrels last week, the Energy Department said this week. The drop left stockpiles the lowest since the week ended Jan. 5.

With the recent gains, the price of oil is closing in on the inflation-adjusted highs hit in early 1980. Depending on the adjustment, a $38 barrel of oil in 1980 would be worth $96 to $101 or more today.

Some analysts argue that the underlying fundamentals don't support such high prices and say speculative buying is the real reason prices are rising.

"What we're seeing ... is rising supply and relatively weak demand," Evans said. He believes oil's "true value" is closer to $65 a barrel.

But others, like Matthew Simmons of Houston investment bank Simmons & Co., join with Pickens in backing the "peak oil" theory, even as executives from companies such as Exxon Mobil Corp. currently downplay the possibility.

Peak oil suggests world production has reached or is about to reach its zenith, after which it will begin an unstoppable decline. Critics say it's impossible to know when petroleum output has peaked, given uncertainties estimating global reserves. Previous efforts to peg a date for peak output have been wrong, they say.

But Pickens counters, "They talked like $50 was going to be difficult, and $60 and $70. We went through those like a knife through hot butter."

Pickens said the major oil companies should be doubling dividends and cutting buybacks.

"I think the repurchase of stock in the market is telling something," he said. "It's telling the market that we can't grow."

The companies will be manufacturing operations eventually, he said. "The reserves will be gone and they're going to be refiners and processors," Pickens said.