Supply fears boost oil prices

HOPES for a long-overdue cooling in world oil prices were dashed today as crude leapt to new 13-year highs amid renewed fears of supply shortages and the security situation in Iraq.

Brent crude marched 11 cents higher to $37.47 a barrel in London while Nymex crude built on last night's first close above $40 since the end of 1990, rising 18 cents to $40.24.

Traders said there was now a real risk of prices rising still further despite growing speculation Opec will debate an increase in the cartel's output at an informal meeting next week.

The shocking videotaped beheading of US hostage Nick Berg in Iraq did little to calm nerves over the rising political tension in the Middle East.

Orin Middleton, energy analyst at Barclays Capital, said: 'We've all been watching $40 a barrel and now we're through that there's potentially no lid on where the price goes next.' The squeeze on crude supplies was highlighted by a new International Energy Agency report which showed demand growth this year is likely to be 2m barrels a day, the highest for 16 years.

It indicated that Opec's proposed 1.5m barrel output increase may have little impact as the cartel's members pumped out nearly 2m barrels a day over its quota in April. 'For now the credibility of production targets has all but evaporated, and so too has any illusion about price control,' the IEA, an inter-governmental agency linked to the OECD.

Opec cut its production by nearly 400,000 barrels in April and the IEA insisted the cartel was a key factor behind the sky-high prices despite political uncertainty and gasoline shortages in the US.

'Opec's ongoing policy of trying to ensure inventories remain at low levels in consuming regions, just when demand is surging in Asia, and now apparently also in the OECD,' the agency said.

The IEA is revising up its forecast for global oil demand by 330,000 barrels a day to 80.6m for 2004, following a growth in firstquarter demand of 1m barrels a day in China. It added that the economic recovery in the west led to a 'remarkably steep' growth in oil deliveries into industrialised nations in March with double-digit gains in the UK and France.