Oil prices hits new record

Last Modified: 22 May 2008
Source: PA News

There was more grim news for motorists as oil hit a new record above 135 US dollars a barrel on supply fears and US economic concerns.

The fresh peak came in the week the AA motoring organisation reported the highest monthly rise in average diesel prices this century - up by 6.76p to 124.17p a litre. Petrol also leapt 4.49p to 112.55p a litre in the month to mid-May.

Crude oil for July delivery peaked at 135.04 dollars in overnight Asian trading as demand showed no signs of abating.

The spike came after US figures showed an unexpected drop in stockpiles, while downbeat growth forecasts from the US Federal Reserve weakened the dollar.

Oil was trading at around 66 US dollars a barrel a year ago - less than half Thursday's level - but traders have been buying crude as a hedge against the faltering dollar.

This has caused a surge in the price of oil - a practice attacked by AA president Edmund King earlier this week.

The steep rise has also put the Bank of England's efforts to control inflation under pressure.

Governor Mervyn King warned last week that inflation could spike as high as 3.7% later this week - nearly double its 2% target - on the soaring oil prices, at a time when food and other household bills are on the rise.

The inflation pressure means the Bank's ability to help the economy through lower interest rates is limited.

The US Energy Department's weekly figures showed US crude inventories fell by more than five million barrels last week - with analysts expecting a modest increase - while a fall in petrol inventories also took the market by surprise.

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