Oil could hit $100 if dollar doesn't surge:

Oil could hit $100 if dollar doesn't surge:  29 Jun 2010, 0342 hrs IST,REUTER

NEW YORK: Oil could hit $100 a barrel in 2011 if the dollar does not surge against the euro as it did this year and the economies of China and India expand enough to consume at least a third of production, Bank of America Merrill Lynch said in a forecast on Monday. US oil's benchmark West Texas Intermediate (WTI) crude and London's Brent crude were both expected to average $78 a barrel in the second half of this year and $85 through 2011, BofaML's Commodity Strategist Francisco Blanch told a media briefing on the bank's half-yearly global markets outlook. "We still think oil prices will cross $100 a barrel at some point next year but not if the dollar appreciates against the euro like it did this year," Blanch said. "Every 10 percent decline in the euro results in a 15 percent decline in oil over a three-month period." Also Read  → BP oil spill costs hit $100 mn/day  → Oil cos' investors to be rewarded with good dividends  → Deregulation of prices a relief to oil industry The dollar has risen 10 percent year-to-date against a basket of major currencies. The greenback's rally last month had sparked a sharp sell-off in commodities as investors holding other monies such as the euro suddenly found dollar-denominated commodities costlier. Growth in China and India was also key to oil prices, Blanch said. "If China and India account for 35 to 40 percent of the world's growth in oil demand, then it's possible to hit $100." US crude last traded above $100 in October 2008, just before the onset of the recession. WTI's front-month contract in New York settled at $78.25 a barrel on Monday. Despite the threat to recovery from the European debt crisis, the world economy was still expected to grow by 4.4 percent this year and lend support to a cyclical, across-the-board rise in commodity prices, Blanch said. "We see a significant increase in the demand for energy and industrial commodities around the world," he said. "The commodity super-cycle is not over. It is just pausing." Even so, investors should beware of price swings, he said. "The volatility in commodity prices will remain high compared to historical averages due to structural supply and demand imbalances," Blanch said. For natural gas, BofaML said it did not expect the weakness in the commodity to dissipate any time soon due to comfortable supplies. New York-traded gas futures are down about 15 percent on the year, settling on Monday at $4.717 per million British thermal units. For copper, the bank forecast the benchmark three-month contract on the London Metal Exchange to average $7,275 a tonne this year and $8,000 a tonne in 2011, due to tighter supplies. LME copper settled at $6,869 a tonne on Monday. BofAML also said it expected gold to rally to new record highs of around $1,500 an ounce by the end of 2011 as more central banks around the world seek the precious metal for their reserves.