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Monday, July 24, 2006

Rogers: $100 Oil This Year

By Yaser Anwar, CSC of Equity Investment Ideas

Will oil soar to $100 a barrel by the end of the year?

The answer is yes, according to acclaimed commodities investor Jim Rogers, co-founder of George Soros' Quantum hedge fund. And he is not alone.

"Commodity investors looking for $100 oil will see it,'' Philip K. Verleger, an economist who founded PK Verleger LLC, a Newport Beach, California-based energy consulting firm, told Bloomberg. He is also a visiting fellow at the Institute for International Economics in Washington.

Verleger also told the news service that only a U.S. recession will halt the advance to $100 a barrel before the end of 2007.

``Unless somebody discovers something very quickly and very accessibly, we're all going to be dumbfounded at how high the price of oil will go, including me,'' Rogers said in an interview in Singapore. He attributes much of the potential rise to surging oil demand from China, the world's fastest-growing economy.

While oil did fall $0.58 on Monday, in the wake of fighting between Israel and Lebanon, crude for August delivery previously soared to a record $78.40 on fears that the violence could spread through the rest of the Middle East, the source of more than 30% of the world's crude.

Meanwhile, Bloomberg cites Francisco Blanch, head of commodities research at Merrill Lynch, the largest brokerage in the world. He says there is little chance that oil prices will rally again - especially to $100.

``It's unlikely we will see another price rally from here, unless the current conflict expands beyond its current borders,'' Blanch said in a July 17 interview in London, according to Bloomberg. ``You'd need physical disruptions, and large ones, to bring the price to $100. You'd probably need to lose Iran.''

But Bloomberg reports that this current jump in prices is particularly disconcerting for a variety of reasons.

"U.S. growth is slowing and inflation is rising; Europe is only starting to show signs of revival; China and other Asian nations have begun passing earlier price increases on to consumers and businesses. The world economy is also more at risk because the recent oil run-up is driven more by supply concerns than strength in demand."

According to top analysts, the situation comes at a dangerous time, with an extremely vulnerable U.S. economy and a Federal Reserve that is left with few options. Of course, there is a real danger that the Fed will be forced to keep raising interest rates to combat energy-driven inflation - thereby crushing global economic development.

According to the former chief economist at the International Monetary Fund, the chances of a U.S. recession in 2007 have doubled and are now at 25% to 30%.

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