Page last updated at 21:32 GMT, Thursday, 3 July 2008 22:32 UK

Oil price hits yet another record

Worker checks over oil pumps in Iran
Opec believes oil prices could go as high as $170 a barrel this year

The price of oil has continued to climb with US light, sweet crude reaching a record closing price and London Brent rising above $146 a barrel.

Oil prices have risen significantly since the US government announced on Wednesday that its crude stockpiles had fallen by more than expected last week.

Brent peaked at $146.69 before falling back $146.08, while US crude added $1.72 to $145.29, having hit $145.85.

Motoring organisation the AA called the rate of increases "eye watering".

Absorbing prices

A barrel of Brent crude has risen by almost $4 since the beginning of the week.

The AA estimates that a $2-a-barrel rise in crude oil means an extra penny on fuel prices at the pump. This takes a number of weeks to feed through to the fuel stations.

"The market can absorb a little bit of the increase on the forecourt, but nothing like this," the AA's Paul Watters told the BBC.

Currently, unleaded petrol is 118.95 pence per litre on average and diesel 132.20p, according to Experian.

An AA survey in April showed that almost two thirds of motorists were either doing fewer trips by car or cutting back on other spending as a result of higher fuel prices.

"This is only going to happen more. This is very very bad news for the economy," Mr Watters added.

Fuel prices

Oil prices are expected to rise even further.

Russian President Dmitry Medvedev, speaking ahead of next week's G8 meeting of leading industrialised nations, predicted that prices would climb to $150 a barrel.

"Unfortunately, rising oil prices create problems for the world's economy," he said.

Companies across the world have been suffering under the strain.

Air New Zealand has become the latest airline to say it cannot continue to absorb the rising cost of jet fuel, which is now more than $170 a barrel.

The carrier announced on Thursday that domestic fares would rise by 3% and international fares by 5%.

That followed a profit warning from Hong-Kong based airline Cathay Pacific on Wednesday.

Supply concerns

Some observers have blamed speculators for pushing oil prices higher.

However, Prime Minister Gordon Brown, speaking to a committee of MPs, said he thought an imbalance in supply and demand was the primary reason for the spike in prices.

"You can't put down to speculation the whole of the problem we are dealing with at the moment," Mr Brown said.

The president of oil group Opec has blamed the weakening of the dollar, which makes oil a more attractive investment.

There had been fears that a rise in eurozone interest rates - which went from 4% to 4.25% on Thursday - would weaken the dollar further and could cause oil prices to rise more as investors turned to commodities rather than the US currency.

But European Central Bank bosses held back from signalling further rate hikes, limiting the damage to the dollar.

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