Oil hits another new high

(November, 01, London, Sri Lanka Guardian) Oil hit a new high of more than $96 a barrel this morning, driven by renewed fears of fuel shortages this winter and the impact of rising demand from China and India.

The price of a barrel of US crude oil for December delivery reached $96.24 in Asian trading, having already gained 5% yesterday on the New York exchange. Brent North Sea crude also hit a new high of $91.63 a barrel.

The surge came after an unexpected fall in US oil reserves. The Department of Energy reported yesterday that US crude stockpiles had fallen by 3.9m barrels to 312.7m barrels last week, the lowest level since October 2005. This was partly due to supply problems in Mexico, where exports were disrupted by a storm.

Analysts said last night's cut in US interest rates also gave oil a boost, as it made it cheaper to borrow money to speculate on the oil price.

US crude cleared $90 a barrel for the first time last Friday, before falling back to $89.32 on Tuesday. These latest gains have left traders speculating when, not if, it will reach $100 a barrel.

The chief economist of the International Energy Agency warned yesterday that China and India's ravenous thirst for oil would keep prices high, and could even lead to a global economic slowdown.

Fatih Birol told a conference in London that he had experienced "an earthquake" in his thinking. He pointed out that two-thirds of the growth in global oil demand over the last 18 months came from China and India alone.

"We may see very high prices that will come to a level where the wheels may fall off," Mr Birol said. "I definitely believe that if prices stay at these levels, there will be a slowdown of the global economy."

The Chinese government responded to the escalating oil price by raising fuel prices by 10% today. It had previously said it would not alter its controls on fuel prices this year.

The price hikes were an attempt to support China's oil refiners, whose retail prices are set by the government as part of its strategy for controlling inflation.

"The widespread oil-product shortages apparently forced the Premier Wen Jiabao to blink," said Frank Gong, JP Morgan's chief China economist, in a research note.

"The move last night apparently was forced on the authority after a big lesson: they cannot time the market."

Motoring organisations have warned that drivers will see higher prices at the pumps unless the oil prices drops soon. Diesel is already at £1.01 while petrol prices are at 98.44p, just shy of the 98.54p peak hit in August - although some garages charge more.

At midday, a barrel of US crude was trading in London at $95.52 a barrel, and Brent crude was at $91.27.

Adjusting for inflation, oil's all-time peak came in 1980 when it reached $40 a barrel - more than $100 a barrel at today's prices.

(Guardian Unlimited)