Oil prices set new record highs

Global growth is underpinning prices

The price of crude oil has hit a record high in New York and gained in London as concerns about supply and security persist.

US light crude closed at $41.38 a barrel, up 30 cents from the previous day.

In London, Brent Crude climbed to $38.40, reaching levels last seen following Iraq's invasion of Kuwait in 1990.

The recent surge in oil prices has been driven by ongoing security concerns in the Middle East and a supply shortage.

Global demand for oil has never been higher, lifted by heavy consumption in the US and fast-growing China.

A decision by several consumer countries to stockpile oil in light of the ongoing uncertainty in Iraq has also stretched supplies.

It has prompted some economists to warn about the effects of higher raw material costs on economic and profit growth.

Driving demand

The Bush administration, which faces an election in November, has urged oil producers to increase output so as to avoid damaging the US economy.

Airlines such as British Airways and Qantas, meanwhile, already have raised prices to offset higher fuel costs.

World crude prices have now added more than 25% in the last year.

"If you look at the way this market is rallying, it's been broad-based and gradual, relentlessly going higher," said Dennis Kongsiri of Mitsui & Co.

However, in real terms, oil prices remain far below the levels they reached during the late 1970s and early 1980s, when output restrictions by producers' cartel Opec caused serious shortages.

Helping hand

Opec is considering a proposal from Saudi Arabia, the world's biggest exporter, to raise output by 1.5 million barrels a day.

Reuters reports that Saudi Arabia is planning to release between 500,000 and one million barrels onto world markets from next month.

But Opec president Purnomo Yusgiantoro has warned that the cartel may not be able to rein in surging prices.

He pointed out that members were already producing well above their quotas.

An extra two million barrels per day, or 2.5% of worldwide demand, was being produced without having an effect on prices, he said.

Slim chance

Julian Lee at the Centre for Global Energy Studies said oil prices were likely to remain high for some months.

"They will stay pretty high - at round about levels we're seeing now - throughout the summer," he told the BBC's World Business Report.

"But the gasoline situation ought to ease towards the winter, and perhaps we'll see them edging back down again. "

Opec is scheduled to discuss changes to output on 3 June in Beirut. There also will be a forum in Amsterdam at the end of this month.