Oil hits record on supply fears

Prices have been above $70 for much of the past year

Oil prices have risen above $80 a barrel for the first time, a day after Opec moved to boost its output of crude in an effort to ease cost pressures.

US light, sweet crude surpassed the landmark level before closing slightly lower at $79.91.

Opec members said they would raise production by 500,000 barrels a day but some analysts have said the move is little more than a token gesture.

Figures also showed a sharp decrease in US crude stockpiles last week.

Market speculation

Analysts have warned prices could go even higher, even if supplies are boosted.

As well as increasing global demand, many investors are speculating that oil prices will keep rising and buying the commodity.

There is zero room for error John Kilduff, MF Global

That in itself is pushing prices higher, analysts said.

"The Opec outcome was not enough of a shocker to turn around a market that likes to read extremes," said Olivier Jakob, from oil consultancy Petromatrix.

US crude had settled at a record closing price of $78.23 on Tuesday and soon moved past the previous record high of $78.77.

London Brent crude, meanwhile, hit a high of $77.93 before easing to $77.68.

Adjusted for inflation, current oil prices still remain below highs seen in 1980.

Falling US stocks are behind the latest price spike

The fresh price spike was triggered by data showing US stockpiles fell to their lowest level in eight months.

Supplies decreased by 7.1 million barrels last week, according to the U.S. Energy Information Administration, a much larger fall than had been anticipated.

This bolstered concerns of supply pressures over the winter months.

"We are getting increasingly into a drier situation in respect with the amount of gasoline in storage," said John Kilduff, an analyst at MF Global.

"There is zero room for error."

Opec move

The 12-nation oil producers' cartel, Opec, initially seemed reluctant to increase its output despite warnings from the International Energy Agency that additional supplies were needed to meet demand.

But pressure from several influential members such as Saudi Arabia, who were concerned that high prices would hurt demand for oil, eventually overcame opposition from others.

It had been expected that Opec's move would eventually depress prices and that this could help ease recent US economic and global stock market jitters.

But there are also concerns that the market could be oversupplied should any weakening of the US economy reduce demand for oil.

Opec, which supplies more than a third of the world's oil, is already exceeding its set daily quotas by 900,000 barrels.