Oil prices have continued their inexorable surge, firming above US$90 per barrel this week to hit a fresh record of $96.24 per barrel in trading on Thursday.

Does this surprise us? The answer is quite simply, no.

While geo-political tensions and lower-than-expected inventory levels might have driven the recent rally, there have been factors at play in the oil market over the past decade, including the emergence of China and the decline in the rate of discoveries that have put all of the foundations in place for an oil price boom.

Furthermore, we maintain our view that further price increases are not only sustainable, but indeed inevitable, over the longer term.

We have essentially been on a crusade since the latter part of 2006 to raise awareness about stockmarket opportunities in the oil sector.

Why were we doing this? Well, as we have previously pointed out, we believed that this may be the last great buying opportunity in oil stocks.

During the latter part of 2006 and the early part of 2007, it seemed as though everything had conspired against the Fat Prophets view on oil.

Believe it or not, media reports were full of gloom and doom regarding oil. Prices slid to a low of just under US$50 a barrel and there were predictions by some market watchers that crude would fall to as low as US$30 within months!

Crude oil did indeed make a very inauspicious start to 2007, with prices falling by more than 30% over a six-month period. As we pointed out at the time, for the nervous-nellies, bears, doubters and trend-followers, there was ample superficial evidence that the oil bull market was over.

However, if one digged just a little deeper through all of the circumstantial evidence, it was clear that very little in oil markets had actually changed. It was essential for investors to appreciate the broader picture.

And what did this tell us then, as it still does now? The world continues to consume oil at a much faster rate than it is replacing it, whilst concerns about existing supplies continue to grow in a deteriorating geopolitical climate.

When oil hit US$50 a barrel the facts showed that the US had experienced one of its warmest winters on record and inventories had built up, putting downward pressure on oil prices. Would this situation last? The answer was clearly no, with inventories disappearing quickly as we had predicted during the US summer driving season.

Market watchers had also dismissed a second major factor, OPEC. In fact, many so-called experts were extremely disparaging about OPEC’s ability to maintain supply discipline. OPEC however stuck to its guns and its production discipline has surprised the market, resulting in an extraordinary rebound in crude prices.

So concerned have oil markets become that oil prices have hit record all-time highs (both in actual and inflation-adjusted terms) of above US$96 a barrel.

And the situation is going to get worse before it gets better.

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