Oil prices depress markets

Soaring energy costs continued to haunt world markets today after the price of crude oil surged to another new high above $60 a barrel.

The record price, which peaked at $60.65 on the New York Mercantile Exchange, will further worry motorists who saw the average cost of a litre of unleaded petrol set a new high at more than 86p last week.

Markets across Europe were affected by the latest rise, with the FTSE 100 Index falling for a second session in a row - paced by a 4% fall for oil-dependent British Airways.

Matt Buckland, trader at deal4free.com, said: "It's starting to look increasingly as if the $60 level may be sustainable. If this proves to be the case, then stocks are set to struggle across the board."

On London's International Petroleum Exchange, Brent was up 69 cents at $59.05 a barrel.

Oil prices are more than 60% higher than a year ago, but have to reach $90 a barrel to match the inflation-adjusted high of 25 years ago.

The latest increase reflects continued speculation about whether output is sufficient to cope with any disruption to production, particularly at a time of high demand from the United States and developing economies. There is also concern about limited refining capacity in the US.

The new leader of Iran, Mahmoud Ahmadinejad, added to the jitters as he appeared to rule out improved ties with the United States. He has also called for a radical shake-up of the country's oil industry.

Analysts said that while markets were unsettled by a rise above $60, the lack of other inflationary pressures limited the impact on the UK economy.

Hilary Cook, of Barclays Stockbrokers, said: "The rise isn't panicking people as much it might have done. There's little inflationary pressure around apart from oil, while we are far less dependent on oil than we used to be."

She said the prospect of lower interest rates was also helping to offset the drag to growth caused by higher energy costs.