Falling stocks push oil to $112

Oil prices have risen sharply in recent months

The price of a barrel of oil reached a record high on Wednesday in New York after a US government report showed an unexpected decline in oil supplies.

US light sweet crude oil jumped nearly $4 to a record of $112.21 a barrel.

Earlier, in London, Brent crude also hit a record price, rising $1.94 a barrel to $108.28.

Traders were surprised by the Energy Information Administration's report, which showed crude stocks had fallen 3.2 million barrels in a week.

Analysts had expected an increase of 2.4 million barrels.

The fall in stock levels sparked concern so close to the start of the summer driving season in the US when demand for fuel rises.

This traditionally begins on Memorial Day at the end of May, when Americans take their cars on holiday.

But analysts suggest the rising price of fuel may mean motorists fill up their tanks less often.

"People are cutting back on gasoline purchases because the economy is squeezing them right now," said Phil Flynn, an analyst at Alaron Trading in Chicago.

The US Energy Department has suggested the price of gas may reach $4 a gallon by the summer. American drivers currently pay $3.34 a gallon on average.

Weaker dollar

Investors have also been looking to move out of the weak dollar and into commodities, pushing up the oil price.

Commodities are viewed as an attractive alternative investment to dollars.

When the dollar weakens it becomes cheaper for foreign buyers to invest in commodities, which are priced in the US currency.

Prices were also bolstered last week when producer group Opec reiterated that it saw no need to increase output.

Light sweet crude ended the day at a record closing price of $110.87, almost two dollars lower than the price it reached during the trading session in New York.