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U.S. benchmark crude oil prices are expected to resume their march towards triple digits as stock markets respond to improved economic data in the U.S. and China, according to CNBC's latest oil market sentiment survey.
January U.S. Non-farm Payrolls released on Friday and this week's U.S. Federal Reserve policy meeting will set the tone for oil markets with investors looking for more evidence that the economic recovery is gaining momentum.
Most economists polled in late January by Reuters expect the Fed's ultra-loose monetary policy to stay in place well into next year despite the modest growth forecast for the U.S. economy.
About 155,000 jobs are forecast to have been added in the month, a Reuters poll showed. The U.S. unemployment rate is expected to hold steady at 7.8 percent. The U.S. economy will likely show that it has "bottomed" in the first-quarter, Michael Kurtz, Global Head of Equity Strategy at Nomura told CNBC's 'The Call' on Tuesday.
The picture for employment in the U.S. is "generally improving, slowly but surely," Sean Hyman, Editor of Moneynews at Ultimate Wealth Report told CNBC's 'Squawk Box' on Tuesday. "We're seeing economic improvement around the world particularly in China and India as well" and that could help lead to a "pick up" in demand for natural resources.
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"2013 will be a bright year for commodities overall," he added.
Eight out of 12 respondents -- or two-thirds -- believe prices will rise this week; two forecast prices will hold steady at current levels while two say prices may pullback.
Although U.S. crude futures failed to test $100 a barrel last week, some expect the psychological level to be breached this week.
"In the near-term, we could either consolidate the recent gains and head sideways or have a shallow pullback before the next burst higher," Hyman said. "Longer-term resistance comes in at around the $103-$105 area, so I believe it minimally makes it up to there."
But if prices do rise and stay elevated above triple digits, some fear this may disrupt the economic recovery and hit sentiment on the equity markets. Higher oil prices would constitute an "added tax on consumers," Michael Gayed, chief investment strategist and co-portfolio manager at Pension Partners, LLC.
U.S. crude futures notched up its seventh straight week of gains on Friday as signs of a recovering global economy brightened the outlook for fuel demand. A seven week run has not been seen since February-April 2009. Brent crude settled unchanged last Friday at $113.28 a barrel, off the session high of $113.84. U.S. crude fell 7 cents to settle at $95.88, off a high of $96.56 and up 0.3 percent on the week.
"The relentless grinding higher has been impressive in oil and equities since the beginning of the year," said Kirk Howell, Partner at Spy Ridge Capital. "I'm not in the business of trying to call tops as much as it is tempting to at this point. I'm neutral directionally but would own hedged upside calls in oil. Your loss is limited at such low volatility and you win on any significant move. Cheap options can get cheaper but it's worth buying cheap insurance when you don't think you need it."
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Many are questioning whether the grind higher in oil markets can continue.
Data from the ICE Europe Exchange shows that hedge funds and other leveraged investors raised their net-long exposure in Brent crude oil to a new record of 153,913 contracts of futures and options during the week ending 22 January.
"Such an increase in speculative net-long raises the question of whether the positioning is becoming unsustainable," said Ole Hansen, Head of Commodity Strategy at Saxo Bank in Denmark.
Oil markets are "still very much in risk on sentiment and during such times fundamentals plays a lesser role," Hansen noted. "We have a whole host of U.S. data this week which could set the near term tone but for now momentum in Brent remains positive also helped by the worry of a geopolitical event such as the attack today on an oil pipeline in Algeria."
Suspected Islamist militants attacked an oil pipeline in northern Algeria on Monday, killing two guards and wounding seven other people, a security source told Reuters, though flows were not disrupted.
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