The crude oil market continued its bullish trend in 2010, driven mainly by a better economic outlook, demand recovery and ample liquidity from speculation and government stimulus.

West Texas Intermediate (WTI) ended the year at $91.38 a barrel, an increase of $12.02 from $79.36 at the end of 2009.

According to the International Energy Agency (IEA), oil demand rose 2 million barrels per day from 2009 supported by economic recovery, leading to a large drawdown in global stockpiles. Opec's decision to maintain its production quota to keep the market in balance provided further support, as did speculation and spiking prices of commodities as a result of the weaker US dollar. This was especially true in the last quarter of 2010 when the dollar fell after the US Federal Reserve announced its second round of quantitative easing measures (QE2) to speed up recovery.

However, price rallies were capped by the European debt crisis, which started with Greece early in the second quarter, followed by Ireland in the fourth quarter, curbing investor risk appetite for stocks and commodities.
Other events that contributed to fluctuations included the BP oil spill, an earthquake in Chile that killed 214 people and halted operations of some domestic refineries, the shutdown of the Enbridge pipeline from Canada, and the volcano eruption in Iceland that disrupted European air travel.

In 2011, the IEA expects global oil demand to increase 1.2 million bpd to an average of 88.2 million. China and India will account for the majority of the growth. Demand will shrink in developed countries where fuel efficiency is improving and demand for alternative fuels is growing.

On the supply side, non-Opec production is predicted to increase, especially in Latin America and Russia, which has replaced Saudi Arabia as the world's largest producer. Crude supply needed from Opec is likely to be unchanged from 2010, enabling it to maintain spare capacity of 5-6 million bpd, an adequate buffer to ease pressure on prices.

Although global oil market fundamentals will be well balanced in 2011, there are many factors to monitor. As in 2010, speculation and investment flows, partly linked to QE2, will continue to influence crude prices. Furthermore, with the greenback widely seen as having lost value as more dollars circulate, demand for commodities as hedging tools against dollar depreciation will increase.

Meanwhile, concerns of a global slowdown, in particular a bubble in China, will keep the market volatile. Despite measures to curb inflation, prices still soared to a 28-month high at 5.1% in November 2010 and are expected to remain high in 2011. Too tight a policy will hurt the global recovery, but too weak a policy could cause China's bubble to expand.

The eurozone sovereign debt crisis is another serious concern.If it persists, worries of it spreading across the region will raise uncertainty in the market and hurt sentiment as well as the euro.

In the US, the government will struggle with a deficit that may become dangerous if QE2 and tax cuts fail to generate growth and income as expected.

Thaioil expects WTI to move within the range of $80 and $95 per barrel this year, averaging $87 compared to $79 in 2010, with support from better fundamentals. Prices, however, will continue to swing on fund flows between asset markets and on global economic risks outlined above. Crude prices may even hit the $100 mark in the face of unexpected trends.