THE oil price is tipped to rise this year as supply falls short...

THE oil price is tipped to rise this year as supply falls short of demand, fuelling volatility across commodities markets.

JPMorgan's New York-based oil research global head, Lawrence Eagles, said yesterday the investment bank expected oil would rise to $US130 a barrel by the third quarter.

"A price of $US130 is a significant response to the supply disruption," Mr Eagles said during a visit to Sydney.

The Middle East uprising has fuelled supply concerns, with Libya's reduced output because of civil unrest adding to disruptions.

Mr Eagles said he expected increased output from Saudi Arabia, Iraq and other Organisation of Petroleum Exporting Countries producers, but he added that most OPEC suppliers did not have the capacity to respond. "The question is not whether producers add supply -- we are convinced they will -- the question is will they supply enough," he said.

Mr Eagles said many of the events this year were unforeseeable, but the market had been underpricing geopolitical risk for some time before the Middle East uprisings.

The market was now tackling the Libyan crisis because the seasonal lull in oil demand and production had coincided with the civil unrest, he said.

"Normally there is a stockpile over that (lull) period to meet the peak (northern) summer demand and this is what the market is now having to grapple with as we come to the OPEC meeting -- whether there is going to be enough supply put in place by OPEC quickly enough to meet that peak summer demand.

"There is this window between July and August.

"If you don't have the crude oil in place . . . you tend to find yourself short of refined products for the second half of the year.

"That is the critical juncture we are looking at, as far as oil is concerned." Mr Eagles said the oil price had remained stable after the global financial crisis because of a build-up in inventory, but increasing demand and new supply shocks would fuel volatility through the rest of the year.

"We have already seen a very volatile year across commodities, and we will continue to see that," he said.

"When we look at oil specifically, a lot of people don't necessarily appreciate the full extent of the change in market conditions that we had from last summer.

"A year ago, we had exactly the same issues in terms of a concern about euro-zone financing problems, slowing economic growth and, ultimately, they manifested themselves in quantitative easing II. When we looked at things slightly longer term, the onset of QE2 added an extra dimension to what was already a strong emerging markets economy base, which is where all the oil and other commodity demand growth is coming from