Oil prices strike new high on supply fears

OIL prices struck a new high last night on simmering concern that rapid fuel demand growth will outpace global supplies at a time when traders fear a sabotage attack on the Middle East oil infrastructure.

US light crude reached $41.85 a barrel, the highest price since the New York Mercantile Exchange launched the crude contract in 1983. Later it eased to $41.28, down 10 cents on the day. London’s Brent crude eased 12 cents to $37.74 a barrel.

“The short-term is dominated by low gasoline stocks in the United States and Europe and deterioration of the Middle East situation. Neither is likely to change much in the months to come,” said Societe Generale economist Frederic Lasserre.

Low US gasoline inventories ahead of peak demand in the summer months, a surge in global consumption driven by healthy economic growth and worries that instability in the Middle East may disrupt supplies have attracted investment hedge funds to oil in droves.

Crude prices are up $9 a barrel, or 28%, since the end of last year.

The United States has led consumer countries’ calls on the OPEC producer cartel to release more supply as fears gather of inflation and a slowdown in economic growth.

OPEC will convene informally later this week on the sidelines of an Amsterdam conference and again in Beirut on June 3 for a full ministerial meeting.

Ministers will discuss a proposal from Saudi Arabia to raise the group’s official production limits by at least 1.5 million bpd to cool prices.

OPEC president Purnomo Yusgiantoro said on Monday the cartel was unhappy with such high oil prices. “High oil prices can cause recession. We are not happy with high oil prices,” said Purnomo, who is also Indonesia’s oil minister.

Even so, oil dealers are sceptical OPEC has enough spare production capacity to bring prices down as most OPEC countries, except top exporter Saudi Arabia, are producing flat out. The group is currently pumping more than two million bpd above its official production ceiling of 23.5 million bpd to feed demand.

Venezuelan president Hugo Chavez said it was not necessary for OPEC to increase production, while Algeria and Qatar have expressed doubt that extra OPEC supply will bring down prices.