Page last updated at 09:11 GMT, Thursday, 8 May 2008 10:11 UK

Supply worries push oil near $124

Oil well
Global demand for oil has been fuelled by China and India

World oil prices have reached a new peak near $124 a barrel.

The rises came despite a US government report on Wednesday showing a surprise increase in US crude and petrol stocks.

US sweet, light crude rose as high as $123.87, but then fell back to $123.42, below the record set in Wall Street trade on Wednesday.

Oil prices have gained 25% in the past four months, boosted by supply fears and speculation. Goldman Sachs warns oil could reach $200 a barrel soon.

London Brent also rose initially, surging to $122.56, before falling slightly.

Momentum buy

US crude stocks rose by 5.7 million barrels to 325.6 million barrels for the week ending 2 May, a weekly US government report showed - much better than expected.

But analysts said that traders ignored the rise and focused on other figures, which showed a fall in diesel and heating oil inventories.

"Right now, the market is trading by momentum as market participants tend to selectively focus on bullish news," said Victor Shum, senior principal at Purvin and Gertz energy consultancy in Singapore.

With an increasing disconnect between the physical reality of supply and demand and the behaviour of traders, Mr Shum considered that there was a greater risk of a sell-off.

End of a trend?

Meanwhile, Goldman Sachs energy strategist Argun Murti said that oil prices could top $200 a barrel in as little as six months.

Oil prices have added 400% since 2001, with traders betting that rampant demand from China to power its economic growth will not be fully met because of production problems in key oil-producing nations, including Nigeria and Iraq.

The slump in the US dollar has also boosted oil prices, as it makes the dollar-denominated commodity an attractive investment for foreign buyers.

But suggestions by analysts that the ailing US economy could be on the brink of recovery have revived the greenback since April and helped to halt the oil juggernaut.

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