INTERNATIONAL. Marc Faber the Swiss fund manager and Gloom Boom & Doom editor sees oil prices extending their bull run despite the 15% run-up this year alone.

In an optimistic scenario demand for oil will rise as the global recovery takes hold, and in a pessimistic scenario prices still go up if the Middle East unrest spreads and crude production is curtailed. In both cases, he says, you should be long energy and energy related shares.

Speaking to CNBC today, Faber said: " I think long term you should be exposed to energy in either scenario....if you are extra bearish and believe that War World III is going to start soon, as I believe, or in an optimistic scenario".

Addressing the fundamentals of the oil market, Faber said: "What we had over the last couple of years is essentially a reduction in demand from the developed world, the US, Western Europe and Japan, and continued growth in emerging economies.

"So, if you take a very optimistic view of the world, namely a global economic recovery, demand in the Western World will pick up and demand in the Emerging World will continue to rise strongly, so from a very optimistic point of view you should be long oil," he recommended.

On the flip side, "in a very pessimistic scenario you have to assume that unrest will shift to Saudi Arabia and other countries in the gulf and at that stage the production is curtailed and in that case obviously oil will go up ballistically."

Brent crude futures could hit US$200 a barrel if political unrest spreads into Saudi Arabia, Societe Generale said on Monday.

Under what the bank called Geopolitical Scenario 3, "unrest spreads to Saudi Arabia and threatens Saudi crude exports and any remaining spare capacity. Brent price range of US$150-US$200 a barrel," it said in a research note.

"In this most extreme, worst-case scenario for the oil markets, serious unrest spreads to Saudi Arabia. In this case, it does not really matter if Libya or any other producers are shut down or not. Saudi Arabia is OPEC's biggest producer and the world's biggest current holder of spare capacity," the bank added.

Saudi Arabia is the world's top exporter of crude oil, meeting about 10% of the global oil demand.

Oil prices dropped today, with North Sea Brent crude dipping briefly below US$113 per barrel, after Kuwait's oil minister said OPEC was considering boosting production for the first time in more than two years.

"You can increase production but to increase the reserves is very difficult and very costly and the fact is simply that the world is burning more oil than it is adding reserves every year," Faber told CNBC.

"So, the level of proven reserves or the existing oil fields, that production will go down, so you have to find new oil fields and develop new ones all the time and that is very costly," he said, adding I would estimate the marginal cost of new oil around US$80 per barrel.

Asked if prices can go up if US demand stays low, Faber said the importance of demand in the developed world is diminishing and the importance of very low per capita consumption countries such as China and India is increasing.

"For the first time in the history of Capitalism you now have essentially demand in emerging economies exceeding demand in the developed world," he said.

What is the best oil investment vehicle?

Faber said he doesn't favor investing in commodity ETFs given the high rollover costs. Investors in ETFs were bound to lose money in the long run given these costs, he suggested.

"In the commodities space, either you go long commodities yourself through the futures market or you buy companies that produce commodities," Faber advises.

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