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Oil prices finished 2011 with West Texas Intermediate (WTI) light sweet crude oil rising 8.15% to $98.83 and Brent prices gaining 13.33% to $107.38, according to data from Schneider Electric's Summit Energy. This, as emerging market demand offset sluggish economic growth in the U.S. and Europe.
In 2012, oil prices may end at record levels, say analysts.
One major driver could be Iran, as the threat of Western oil embargoes over its nuclear program and any potential retaliatory response involving the closure of the crucial Strait of Hormuz oil route between the Persian Gulf and Gulf of Oman presents the possibility of extreme supply disruptions. Iran produces roughly 4 million barrels a day of oil, while tankers carry as many as 20 million barrels of crude oil a day through the Hormuz waterway.
Carl Larry, president of Oil Outlooks and Opinions says that investors can look for $180 WTI oil prices if the Strait of Hormuz were to be affected during the conflict with Iran and $150 "just for starters" if the tensions began to rise to crisis levels.
At $180, even the release of emergency reserves by the International Energy Agency would be powerless against the supply disruptions, Larry warns. And by then, the supply problems would far exceed those seen during the civil war in Libya last year, which saw roughly 1.3 million barrels a day taken offline.
A geopolitical event on the scale of upheaval with Iran would be the "primary bullish risk" to oil prices in 2012, says Citi Futures Perspective energy analyst Tim Evans.
Peter Beutel, the president of energy risk-management firm Cameron Hanover, expects oil prices to "explode" if Iran were to shut down the Strait of Hormuz.
On Jan. 23, threats and counter-threats between Iran and the West erupted again, with the 27-member European Union voting in favor of imposing an oil import embargo on Iran, beginning on Jul. 1. The embargo would both ban imports of crude oil and petroleum products from the country and the insurance tied to those products. The economic impact of the move would be addressed before May 1. The EU also agreed to freeze assets Iran's central bank. Although Iran didn't immediately strike back with any major retaliatory move, two high-profile lawmakers didn't hesitate to threaten the closure of the Strait of Hormuz. In addition, Iranian foreign ministry spokesman Ramin Mehmanparast warned that imposing sanctions on Iran would be devastating to the global energy supply.
Barring any major event out of Iran, Larry expects WTI prices to average between $102 to $106 a barrel this year.
Goldman Sachs analysts are forecasting an average WTI price of $112.50 a barrel.
Veteran NYMEX oil trader Dan Dicker is expecting an acceleration of WTI prices to $125 in the third quarter after a period of little change in the first two quarters.
Natixis' head of commodities research, Nic Brown, predicts that prices will rise to $115 a barrel in the fourth quarter from $103 a barrel in the first quarter.
Petrobras'(PBR - Get Report) chief executive officer, José Sergio Gabrielli de Azevedo, forecast benchmark oil prices of above $100 at the fifth annual Platts Global Energy Outlook forum in December.
The lower end of forecasts factor in the full return of Libyan oil production -- the progress of which is still in dispute in the analyst community -- and the economic impact of the European sovereign debt crisis.
"The return of Libyan oil production is the most significant development that will carry over into 2012," says Evans.
NGP Energy Capital Management analyst A.F. Alhajji agrees that the pace of recovery there is "very critical."