Page last updated at 20:20 GMT, Friday, 23 May 2008 21:20 UK

Oil cools after vaulting to $135

Oil rigs in California
Oil prices have risen more than 40% so far this year

Oil prices were well off their peak of $135 a barrel on Friday as investors cashed in on five sessions of rises.

US sweet light crude had surged to a $135.09 high on Thursday, before falling back to close at $130.81.

But persistent worries about global supplies meant prices once again headed upwards, reinforcing fears about their effect on the world economy.

On Friday US crude settled down $1.38 to $132.19 while London Brent crude was $1.06 ahead at $131.57.

'Not enough supply'

Oil prices have risen about 40% this year, as soaring demand from emerging economies looking to power their growth has been exacerbated by supply fears and speculation on the world markets.

"Supplies not growing is still the main thing," said Tony Nunan at Tokyo-based Mitsubishi Corp.

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"Opec can turn the tap but they cannot do it forever, and non-Opec growth is not enough," he added.

Some analysts have raised the possibility that oil could reach $200 by 2010, while others say that if geopolitical worries subside and the US dollar regains its strength, it may begin to edge down.

The record-busting run in oil has pushed fuel bills up to the point where British drivers could pay up to 110m more for petrol over this weekend's bank holiday than they did a year ago, according to the motoring group, the AA.

The average price of diesel has shot up 6.76 pence per litre during the past month to 124.17 pence per litre, while the average price of petrol has risen to 112.55p per litre from 108.06p.

Concerned about the knock-on effect on businesses, the British Chambers of Commerce has called on the government to abandon plans to increase petrol duty by 2p per litre in October.

The high cost of fuel is also having a punishing effect on airlines, with a number warning that they will have to cut flights and increase prices to survive.

British Airways boss Willie Walsh told journalists on a press trip to promote the UK carrier's new OpenSkies venture that airlines will now struggle to offer the cheap fares to which UK travellers have become accustomed.

He told the Guardian newspaper that many budget airlines would collapse, squeezed by the deadly combination of high fuel costs and declining passenger numbers, as consumers rein in their spending.

Investment needed

UK Prime Minister Gordon Brown is working with international partners to persuade the Opec oil producers' cartel to increase supply.

But Opec secretary-general Abdullah al-Badri on Thursday repeated the cartel's stance that it can do nothing to lower oil prices in a "crazy" market and blamed surging prices on traders looking to cash in on geopolitical worries in unstable oil producing regimes, including Nigeria and Iraq.

One analyst said political pressure should instead be exerted on leading producers to invest more in long-term capacity.

"All this excess profit that has been generated by the oil industry really needs to be invested in refineries, pipelines and oil wells," Francisco Blanch, head of global commodities research at Merrill Lynch, told the BBC.

Petrol price graph




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