Crude oil at this writing has risen to near $110 per barrel, well over double the price of January 2007.

It's interesting to note that oil prices have advanced even more quickly than Goldman Sachs had forecast back in 2005, according to Goldman's London oil analysts Arjun Murti, Kevin Koh and Michele della Vigna.

At the time, the investment bank had predicted a range of $50 to $105 a barrel as part of its then-controversial "super-spike" oil theory. According to their thinking, the upper end of the band would be driven by geopolitical turmoil. Recession, too, was a key risk.

Their 2005 oil price estimate was right, as far the U.S. recession is concerned. But oil prices have now reached $108 per barrel – without geopolitical shock.

In case of a "major disruption," political unrest in a supplier country, a major war or significant terrorist sabotage, for instance, they now estimate the oil price could hit $200 a barrel.

Nevertheless, if and when "normalized" trends in the marketplace return, Goldman's analysts believe that the price of crude oil could fall right back to the $60 dollar a barrel zone as early as this year.

The big question is of course: When will "normalized" trends in the markets return?

In that context it is noteworthy to hear from OPEC President Chakib Khelil, who is also Algerian Energy and Mines Minister.

Quoted by Algerian the state news agency APS, Khelil said: "Oil prices will stay above $100 dollars per barrel for the rest of this year due to speculation and geopolitical tensions.

"Prices could retreat in 2009 with a recovery of the U.S. dollar in foreign exchange markets following the election of a new U.S. president, and as fundamentals reassert themselves as major market forces," he said.

So, where could the oil price be heading? As we are literally trading in uncharted territory, it's practically impossible to predict what's next.

In my opinion, cheap oil is not a likely turn of events in the short term. The following two factors are key:

Continued weakness in the U.S. dollar remains the most important driving factor in this crude oil's rally. Oil is traded in dollars, so the producers in part must charge more to offset the exchange loss.

Also, as stocks keep dropping in price while bonds and commodities keep rising, it's logical that money prefers "tangible, highly liquid" assets like oil and gold to "intangibles," like securities.

A lot of people say oil is too high and the dollar is too low. My question is: "What's too high for oil, stocks, commodities and currencies?"

In January 2007, a barrel of oil was as low as $51.81 in dollars and €40 in euros. Given current prices, it's up more than 109% in dollar terms and up more than 75% in euro terms. These are extremely good performances in both currencies.

I don't think we will see these performances falter unless there is a "disruption," which of course cannot be counted out.

Keep in mind, too, that developing countries continue to heavily subsidize their domestic oil prices. In many cases, too, dollars used to buy imports from foreign governments is fed right back into the economy via these subsidies.

Literally, we are paying to keep their oil cheap.

As a result, world oil consumption, for the moment at least, is not likely to implode.

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