One of the key drivers this week for the Singapore market will continue to be the oil price, said dealers. With oil having shot past the US$142 mark last Friday and going up as much as US$7 in just a week, 'we expect the markets to be weak', said a dealer.

The European Central Bank is likely to raise interest rates this week in a move to contain inflation. But it is likely to cause further weakening in the US dollar and add to the rise of oil prices.

Over the weekend, Organisation of Petroleum Exporting Countries president Chakib Khelil referred to the dollar's weakening against the euro as one of the factors that may cause oil to hit US$170 a barrel before the end of the year. Political tensions involving Iran are also a factor.

AMP Capital Investors noted that 'the very short- term outlook for oil prices is impossible to pick - it could just as easily surge above US$160 or US$170 a barrel or fall sharply'.

However, it is fairly positive in that 'the oil price will fall back to around US$100 a barrel some time in the next six months, as slowing global growth and Asian fuel price increases lead to a slowdown in global oil demand, and as speculative positions are unwound.

'And then some time next year, the long-term rising trend will resume again.'

The Dow ended last Friday 106.91 points, or 0.93 per cent, lower. Briefly last Friday, it fell 20 per cent below its October peak - which signifies a bear market - but recovered subsequently.

The STI this week will likely take its cue from the United States market, where investors will be focusing on the upcoming second-quarter results to see how badly firms have been affected.

US economic data set to be released this week include an Institute for Supply Management reading on the services sector, payroll employment data and construction spending figures.

Meanwhile the equity markets remain pressured, with many investors already out of the markets and unwilling to enter the markets.

Investors are already mostly in cash and are looking to commodities to hedge the effects of inflation.

Still, one dealer said since the market has been oversold recently, it is possible that there may be a slight bounce in the short term.

sushyan@sph.com.sg