Oil rally may run further on Venezuela's output woes

DAVOS, Switzerland, Jan 23 (Reuters): A rally that pushed oil prices above $70 a barrel in January for the first time in three years may have further to run because of falling Venezuelan output and funds' appetite for commodities, some oil firms and trading houses said.

Majid Jafar, Crescent Petroleum's chief executive, said prices could rise to as high as $80 per barrel if the economic crisis in Venezuela leads to further output falls. Its production has already dropped to a three-decade low.

"My concern is that events in Venezuela could lead to a shock and prices could go to $80 per barrel this year," he told Reuters Television at the World Economic Forum (WEF) in Davos.

He said low levels of investment in the past three to four years, as oil firms reined in spending when crude prices plunged from above $100 to below $30, has led to a shortage of new projects that could create a supply deficit in the mid-term.

Marco Dunand, the chief executive and co-owner of trading house Mercuria said, global oil demand growth had surprised on the upside, which was also supporting prices.

"People talk about peak demand but then demand all of a sudden accelerates further. And you have global GDP growth rates above average, which is creating inflation fears," he said.

"In that environment, many macro funds want to be long commodities and use them as a hedge against inflation," he said.

Open interest in Brent and WTI benchmark contracts, or the number of futures and options contracts owned by fund mangers, has reached new highs.