Oil leaps to new record above $129

20th May 2008 By: Reuters

Oil rose to a new record above $129 a barrel on Tuesday, spurred by strength in refined oil products markets, led by diesel, and a weak dollar.

US light crude's June contract, due to expire later on Tuesday, rose to an all-time high of $129,31 a barrel and by 13:24 GMT was trading was $1,85 higher at $128,90.

London Brent crude was $2,05 cents up at $127,11.

ICE gas oil futures rallied more than 2.5 percent, reflecting the market tightness in diesel caused by a global demand boom led by China, the Middle East, South Africa and South America for use in generators to produce power.

"Slackening US demand is being offset by brisk offtake in Asian countries, and to a lesser extent in Europe, where the stronger euro is cushioning the price increases," said Edward Meir at MF Global.

"All this suggests that the overall crude picture remains very much unchanged, leaving the market free to push higher on the back of receptive fund money," he added.

The US dollar extended losses against the euro and the yen after economic data showed a smaller-than-expected rise in US producer prices.

Market participants said fears of supply disruptions in oil producers Nigeria and Iran, coupled with OPEC comments this week suggesting a reluctance to raise output at its next meeting in September were keeping the oil market tense.

China, the world's second-biggest energy consumer, released a total of 8,312 tonnes of refined fuel from its strategic reserves to help relief efforts in its earthquake-hit Sichuan and Gansu provinces.

State Chinese refiners have already bought 650 000 t for June, near the record high of 842 000 t imported for January.

SUPPLY RISKS

Port workers, angry over government plans to privatise part of the ports' activities, staged a one-day strike at the country's largest oil hub, Fos-Lavera near Marseille, stopping 13 oil tankers from entering according to port authorities.

In Nigeria, where a spate of attacks and sabotage are estimated to have shut in about 559,000 barrels per day, security forces clashed with gunmen trying to rob a bank on Monday outside the gates of a Royal Dutch Shell compound on Bonny Island.

"The supply side risks are driving prices higher," said Gerard Burg of National Australia Bank in Melbourne.

The Organization of the Petroleum Exporting Countries (OPEC) reiterated oil markets were well supplied, and blamed high prices on speculation, a weak dollar and geopolitical problems.

OPEC President Chakib Khelil said on Monday the group would not meet before its September scheduled gathering and was unlikely to boost output even then.

Forecasts in a Reuters preliminary poll on US petroleum inventory data due out on Wednesday called for a 600 000-barrel rise in crude stocks, a 500 000-barrel gain in gasoline stocks and a 1,3-million-barrel build in distillate stocks.