The oil roller coaster is back on an upwards curve, with some experts predicting a surge of more than one third in the price of crude before the end of the year. After the precipitous falls of last autumn, the black stuff seems to have found a natural floor at about US$40 a barrel and is steadily moving ahead from that level. But the question industry analysts - and Gulf finance ministries - are asking is this: is this a gush, or a gentle trickle?
It is a question of great importance for the region's policy makers. Last summer, when crude hit an all-time high of nearly $150 a barrel, the Gulf became the focus of the world's attention. Revenues were coming in at a rate of billions of dollars a day and the optimism this engendered was enough to offset creeping apprehension that the global economy stood on the brink of collapse. By October, that mood had totally evaporated. Financial recession was on us and the only question was: how long and how severe will be the economic downturn that will inevitably follow?
For the UAE and other Gulf energy producers, there was a further anxiety: how can we balance the national books when the price of the main export is in a recession-driven dive? The accepted wisdom was that regional finance departments had budgeted for about the $40 to $50 mark and, whether that assumption was correct or not, finance ministers became noticeably twitchy when it dipped below $35 in February.
So it is relief all around to see oil futures on the New York Mercantile Exchange once again approaching $60. How far will it go and how fast? Already, there are bull and bear tendencies emerging. PVM, an independent oil broker based in London, was the first to break ranks with a forecast late last week that crude could hit $78 in the next six months. The firm appeared to base its projection on some pretty arcane mathematical formulas - like the Fibonacci sequence, which is too complex to explain here - rather than fundamental industry analysis. But you get the gist; oil is on a sharp upwards trend, according to PVM.
For the time being, the more traditional industry analysts appear to be keeping their fingers on the starting gun. Analysts at AML Capital, the Dubai-based investment group, see a level of "fundamental support" for oil in the region of $40 to $45, which seems to have become a consensus minimum price. The arch-bull of crude, Goldman Sachs, which said last year - before the crisis - that $200 was attainable, are again among the most optimistic with a forecast of $65 by the end of the year.
As ever, there are so many variables determining the price of crude that forecasting becomes more an art - if not a lottery - than a science. But there is one big one this time that outweighs all others, simply because it will determine economic life on earth: the prospect for global recovery. In the past couple of weeks enough "green shoots" have been seen to constitute a forest of optimism. From US employment to international liquidity to Chinese and German exports, all the signs are that the rate of economic slowdown is decelerating quickly.
This is a major factor behind oil's recent recovery. If the economic indices begin to rise again, world demand for energy will also rise. There is the conundrum here, of course, that too sharp a rise in the oil price will act as a brake on recovery prospects, but with the world still anticipating reflation rather than inflation, that danger seems negligible. Supply side factors are also crucial. There is some sign that key US oil inventories - that is, the amount of the stuff the Americans have stashed at cheap prices - are starting to level off, but with global reserves at a five-year high it will be some time before any restocking leads to a snap leap in demand.
Certainly OPEC is not going to increase output at its next meeting at the end of the month, but for the first time in six months there is no talk of further cuts. Petro-political factors are as relevant as ever. The big current unknown is how the world, and especially the US, will react to the decision by Hugo Chavez, the Venezuelan president, to nationalise his country's oil contracting industry.
All you can say with certainty is that there is a growing and significant risk to supply from Latin America, for once taking the attention off the geopolitical situation in the Middle East. The outlook is encouraging for the Gulf. Rising oil prices have a direct and benign effect on capital inflows in the region, but it is worth noting - as the managing director of research at Al Mal Capital, Rob McKinnon, points out - that property has overtaken the black stuff as the main driver of the region's economies.
"Direct and related real estate sector employment accounts for perhaps one third of economic activity in the Gulf, with all that means for consumer demand and living standards," Mr McKinnon says. Oil is a cause for optimism for the region, but it must still tackle the real estate problem. We are back to where the economic crisis began. fkane@thenational.ae