(SINGAPORE) Crude oil prices could hit US$90 in the near term, traders here warn, following Monday's push by hedge funds to above US$86 a barrel.

But some feel that the latest run-up is not sustainable and expect the prices to ease to around US$80 in two to three weeks' time.

Meanwhile, economists here like Citigroup's Chua Hak Bin warn that 'what's different in the oil rally this time is that inflation here has become a flashpoint'.

Inflation in Singapore hit 2.9 per cent in August, which is a seven-year high, and 'outside our comfort zone', he says.

And if it pushes past 3 per cent, the Monetary Authority of Singapore - which last week said it will allow the Singapore dollar to strengthen at a slightly faster pace - may have to tighten further, Dr Chua says.

Putting the overnight Monday oil price spike in perspective, one oil trader with a local trading house said 'there's no real big difference in the political situation between last week's US$80 price and Monday's US$86'.

The reason for Monday's spike to US$86.13 - which was US$2.44 or 2.9 per cent higher - was attributed to plans by Turkey to send its forces into Iraq to pursue Kurdish militants, but was already factored into last week's prices, he said.

'Essentially, it's just funds pouring money into oil, as the weak US dollar makes crude an investment,' the trader added.

'In the very short term, oil will likely trade between the US$85 and US$90 range, as it's no longer fundamentals affecting the market. It's like other commodities, including gold, nickel and platinum, which are all shooting to all-time records because of the hedge funds,' he added.

Credit Suisse's chief economist for the Asia-Pacific, Arjuna Mahendran, was more circumspect, saying 'the latest oil price spike is not sustainable'.

'It's all pushed by speculative money and not due to any demand and supply imbalances. The Saudis have enough 'swing' production power, and Opec will not want to see oil prices staying at US$85 on a sustained basis, as alternative energy may then kick in.

'Essentially, there's been a rebound in risk appetite (after the recent sub-prime mortgage crisis) not just in oil but also the stock market, and I expect a correction back to US$80 oil in the next two to three weeks,' Mr Mahendran said.

Agreeing, another oil company executive, feels that the latest run-up in oil prices 'is a blip'. He also reckons that it's due to hedge fund activity to shore up their books before the year-end.

But the price volatility does makes life more difficult for the oil companies, he said.

For better oil price risk management, most oil refineries now do not keep too much stocks for fear of inventory writedown, in case they have to buy oil at high prices and then later sell low, should prices go down.

'Typically most now keep only about three weeks of oil stocks,' he said.

The crude and product markets are also two different markets, the official said, saying that product prices may only follow high crude prices up if the latter is sustained.

Rifaat El Gohary, managing director of Bakri Trading, said that in the meantime, 'the momentum for crude to hit US$90 in the next two weeks is very great'.

'Only two groups of people can change this. . . that is if Opec says they will increase production, which the market will not believe, or if the US says they will release crude from their strategic stockpile, which will not happen.'