Oil hits record $126 on supply worry

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Saturday , May 10, 2008 at 1013 hrs Oil jumped to a record above $126 a barrel on Friday, extending gains to more than 11 per cent since the start of the month on fuel supply concerns and a rush of speculator buying.

US crude settled up $2.27 at $125.96 a barrel before rising to a record $126.25 in late post-settlement trade. London Brent crude gained $2.56 to settle at $125.40 a barrel, off the earlier high of $125.90.

"It appears that any calculations that included waiting for the next pullback were discarded on the European opening this morning as waves of buying materialized, particularly from speculative interests," said Mike Fitzpatrick, Vice-President at MF Global.

Oil has surged since slipping as low as $110.53 a barrel on May 1. Investors have seized on disruptions to crude oil supplies in the North Sea and Nigeria, as well as galloping demand for distillate fuels, a category that includes diesel fuel and heating oil.

Strong demand for diesel fuel in Europe, along with the growing use of distillates for generators to supplement strained power grids in fast growing emerging markets, have cut into stocks of distillate fuel and pushed up prices sharply.

"Lingering geopolitical fears and high heating oil prices are helping the market, but the speed of the rise is too fast," said Tatsuo Kageyama, analyst at Kanetsu Asset Management in Tokyo.

The steady rise in crude oil prices once again has turned the spotlight on the Organisation of the Petroleum Exporting Countries (OPEC), which for months has insisted it has no control over the factors it blames for pushing up the price of oil, including speculation and the weak US dollar.

An OPEC source said the group might consider boosting output before its next scheduled meeting in September should crude oil prices keep rising.

But Ecuador's Oil Minister said there were no plans for an early meeting.

"If the price keeps going up, OPEC may consult on an increase in production before it meets in September. In my view, any increase would have to be more than 500,000 barrels per day to have an impact on the price," said the OPEC source.

US President George W Bush said on Thursday he would bring up the subject of oil prices during talks with Saudi leaders during a planned trip to the Middle East from May 8-13.