If the widely accepted economic theory of demand and supply are to be believed, the crude oil prices could rise to an all-time high above $150 per barrel in the year 2012. The theory specifically points to geopolitical tensions in the Middle East especially Iran as the reasons for the possible surge in oil from the current prices. The oil market is currently trying to deal with oil output shortages in South Sudan, Syria, Libya and Yemen. Add to the above, a possible Iranian oil embargo and you have the situation described by many analysts –The supply side is certainly in a mess.

With the supply side looking all but bright, the demand of the global economy-led by the emerging markets such as China-is looking better-than-ever. This bright outlook is confounding the bears and is escalating. This leaves a situation in which many analysts have confirmed that it’s difficult to see much price downside from the current levels. If oil prices even remain at current levels, it would mean that 2012 would set a record annual average price for oil. Brent Crude oil, the global benchmark, averaged $109 a barrel in 2011, setting an all-time high above the previous average record of $98.40 a barrel set in 2008.

Analysts have been pouring in their concerns about the geopolitical situations in the Middle East. The head of commodities research at Barclays Capital, said in a recent note to clients that the risk of a supply disruption from Iran was rising, and warned investors not to trade against the uptrend. Iran is the world’s third-biggest oil exporter, behind only Saudi Arabia and Russia so any embargo of oil from the region could trigger a justifiable price rise.

Unfortunately for some members of the Eurozone that are suffering from the debt crisis, any stoppage of Iranian oil will be a double blow to the growing expectations of overturning the crisis. The countries most exposed in the Eurozone to a cutoff are Greece, Italy and Spain. Countries that strike a note of warning to all!

Backing the bullish trend of the crude oil prices are two hidden facts. Firstly, global oil inventories are at the lowest levels since 2008. Secondly, Saudi Arabia is already pumping out oil at nearly a 30-year high rate, calling into question whether the highest producers of oil can really pump out more oil to make up for the production shortages elsewhere.

All the facts are suggesting to a rise in the crude oil prices in the year 2012. Will it surpass the highs of 2008? Only time would tell!

Note: The blog is just an expression of the author’s opinion and cannot be deemed responsible for any losses incurred.