Page last updated at 17:56 GMT, Tuesday, 15 April 2008 18:56 UK

Oil price hits $113. 93 a barrel

Oil rig in Eastern Siberia
Can Russian oil growth be relied upon in the future?

The price of oil has hit a new record as problems with a US pipeline underscored concerns about supplies.

US light, sweet crude oil rose to $113.66 a barrel, a fresh peak, before falling back. Brent crude hit $111.85 a barrel in London, also a new record.

Comments by Russia's leading oil firm suggesting output from the country may have peaked also worried traders.

Investors are opting for commodities over a weak dollar and other assets affected by a US economic slowdown.

Investment shift

The Capline pipeline that transports 1.2 million barrels of crude oil daily from the US Gulf Coast to the Midwest - was closed on the weekend. It has since resumed operations but below capacity.

Also pushing up oil prices was a move by Mexico - a key supplier to the US - to close three ports because of bad weather.

Fears over the state of the world's largest economy continue to concern traders a day after Wachovia, the fourth largest bank in the US, saw a first-quarter loss and said it needed $7bn in cash to counter problems in its mortgage business.

"This news highlights the strains in the banking sector and credit markets and that has led to more dollar selling, and so that tends to drive investors into oil and other commodities," said Victor Shum, an energy analyst with Purvin & Gertz in Singapore.

Russian peak?

A surprise fall in Russian oil output in the first part of the year has raised fears over the ability of global supply to keep pace with demand over the next decade.

Russian production averaged 10 million barrels a day in the first three months of 2008, down 1% on the same period last year.

Blamed on supply problems in Western Siberia and weather conditions making it harder to move drilling equipment, the fall contrasts with substantial output rises in recent years.

In an interview with the Wall Street Journal, a senior executive with Russian oil firm Lukoil cast doubt on whether output could continue to increase.

According to vice president Leonid Fedun, investment of $1 trillion in new reserves will be needed over the next 20 years to maintain output at current levels.

Oil rig
Oil prices have risen sharply in recent months

Once highly productive fields in Siberia are slowly being exhausted and the huge cost of searching for oil in the untapped but remote region of eastern Siberia has deterred firms.

"When the well's productivity falls, you have to keep drilling more and more," Mr Fedun said, referring to the steady depletion of older fields.

"You have seen it in Alaska and the Gulf of Mexico and now you are seeing it in Siberia."

Analysts at Citigroup recently said annual increases in Russian output could "no longer be taken for granted", while arguing that production was expected to rise until 2012.

Russian worries underline longstanding concerns about whether there is enough oil to meet the needs of the global economy, particularly fast-growing China and India.

"The supply is so tight that any supply problems cause real concern" said analyst Robert Nunan at Mitsubishi.

"We just don't have the big cushion any more that we used have, so it's much easier for money to come in and prop up prices now."




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