Oil prices are once again a major concern among investors everywhere, with prices surging beyond $90 a barrel in the last few days on worries that Turkey might attack
Kurdish separatists in northern Iraq.

Although prices have eased a bit due to expectations of a US economic slowdown, which will likely curtail demand on oil, current levels are still well above last yearÆs record high of around $78 a barrel.

Shane Oliver, Sydney-based head of investment strategy and chief economist at AMP Capital Investors, says oil prices are likely to fall toward the year-end as global growth moderates, but the long term trend will remain up, surpassing $100 a barrel in a few years.

Every so often prices surge due to supply worries, only to fall back toward the year-end ahead of a new surge the coming year, he says. He notes that was the case following the post Hurricane Katrina surge in oil prices in 2005 and last yearÆs surge in July after Israel invaded Lebanon.

ôThe latest rise in the oil price has the potential to create short-term jitters about the economic impact and push share markets down. However, the impact is unlikely to be lasting,ö he says.

While the oil price may head even higher in the weeks ahead û particularly if Turkey does go into northern Iraq û the impact will likely be short-lived.

ôWhile the market is currently fretting about the impact of Turkey disrupting the flow of oil through Northern Iraq, only a small amount of oil passes through there so the impact is likely to be very small,ö he says.

The spare capacity of the Organization of Petroleum Exporting Countries (Opec) is now around 3.5 million barrels a day while Saudi ArabiaÆs is around 2.6 million b/d. That spare capacity will easily make up any new short fall in IraqÆs current meager production, which is running at around 2 million b/d, he says.

Also, the normal seasonal pattern is for oil prices to fall though the December quarter after the northern hemisphere ôsummer drivingö season winds down, he notes.

Looking ahead, Oliver notes that oil consumption is trending up, while new oil discoveries are trending down.

Global demand for oil is expected to rise at around 1.5-2% annually over the next few decades, and this already factors in alternatives and energy efficiencies.

If per capita oil consumption in China and India were to rise to just half of Australian and Japanese levels it would imply an extra 39 million b/d in global oil demand, which is currently 85.9 million b/d, he says.

Global oil production is still rising, but supply is constrained by years of low exploration, diminishing returns and the rising cost of extracting new oil.

ôIn this environment anything that may threaten the supply of oil will have a disproportionate positive impact on the oil price, as we have seen in the last few days,ö he says.