Oil prices hit new 10-year high

Tension between Iraq and Kuwait is hitting oil prices

Crude oil prices climbed to fresh 10-year highs on Monday, despite words from key producers intended to reassure markets and an easing of fears that bad weather in the Gulf of Mexico would disrupt US supplies.

By 1400 GMT one benchmark for crude oil prices, so-called light sweet crude futures, had reached $36.45 a barrel in New York - the highest level seen since 18 October 1990 and 53 cents up on last week's closing price.

In London, the price for Brent crude oil also shot up to decade-long highs, standing at $34.62 a barrel at 1354 GMT, 64 cents up from the close of trade on Friday.

The president of Germany's central bank - the Bundesbank - Ernst Welteke also entered the debate, saying he regretted tax cuts made by some European governments due to high oil prices.

He said any tax reductions would be futile as they would have to be matched by lower spending.

On Friday, crude prices in New York had rocketed by almost $2 to $36 a barrel as tensions flared again between Iraq and Kuwait. Traders were also worried about a tropical storm moving close to the oil-producing Gulf of Mexico.

By Monday, the storm, nicknamed Gordon, was passing through the eastern part of the US Gulf, missing the central region where most US offshore production is based and easing fears of a disruption to supplies.

Markets unimpressed

But analysts said the markets appeared unimpressed by this good news.

Comments on Sunday by the Organisation of Petroleum Exporting Countries (Opec) intended to reassure the markets failed to make an impact as well.

Opec secretary-general Rilwanu Lukman had said that the cartel's members stood ready to lift output by another 500,000 barrels a day before November if crude prices remained above $28 a barrel.

But analysts said the market was still being driven upwards by tensions between Middle East oil producers Iraq and Kuwait.

A fresh war of words had broken out between the two on Thursday, when Iraq accused Kuwait of stealing oil from its southern fields - a claim which Iraq had also made just before invading its neighbour in 1990.

Kuwait denied the charge the following day while the United States weighed in with a warning to Iraq that it would face renewed military attacks if it threatened its neighbour.

On Monday, Kuwait repeated its denial, adding that it would welcome investigation of the Iraqi claims by a neutral party.

Iraq also renewed its allegations and ratcheted up the pressure on world markets further by warning fellow Opec member states against pressure from "superpowers" to reduce prices.

Jittery markets

Although Opec had recently agreed to pump 800,000 more barrels a day to help cool oil prices, dealers said the markets remained jittery.

US crude stocks were still at very low levels while strong gasoline demand from a record driving season meant refiners had little capacity for other products.

One consequence of this was that heating oil supplies remained dangerously limited ahead of winter, when demand usually surged, they said.