Oil price surges to record high near 128 dollars

A gas station employee refuels a vehicle at a Tokyo gas station
©AFP - Yoshikazu Tsuno

LONDON (AFP) - The price of oil rocketed to a record high of 127.82 dollars per barrel on Friday, as US President George W. Bush prepared to urge Saudi Arabia to pump more crude, analysts said.

Friday's record run for New York's light sweet crude beat the previous all-time peak of 126.98, which was set Tuesday on worries about tight supplies despite an official downgrade to global oil demand growth.

After peaking at 127.98 dollars, New York's main oil futures contract, light sweet crude for June delivery, stood at 127.43 dollars, up 3.31 dollars from Thursday's close.

London's Brent crude contract for June spiked to its own historic peak of 126.34 dollars on Friday, beating the record of 125.90 reached on May 9. It later Friday stood at 126.07, up 3.44 dollars.

Oil prices have risen by more than a quarter since the start of 2008, when they surged past 100 dollars a barrel for the first time.

US President George W. Bush arrived in Saudi Arabia from Israel on Friday for talks with the world's biggest crude exporter on record oil prices that have hit Western consumers hard.

Bush's Air Force One touched down shortly before 2:00 pm (1100 GMT) at Riyadh's King Khaled international airport, where King Abdullah led a red-carpet welcome for the US president and his wife Laura.

Bush aides have said that, at more than 125 dollars a barrel, oil prices were set to top the agenda of his talks with Abdullah and other Saudi officials.

"The global oil market remains indeed structurally tight," said Victor Shum, an analyst with energy consultancy Purvin and Gertz in Singapore.

"Even though demand growth is showing some weakness, supply growth is also not there. OPEC continues to restrain supply and production in non-OPEC states are not expected to be strong."

Saudi Arabia is the main player in the 13-nation Organization of Petroleum Exporting Countries, which pumps 40 percent of the world's oil.

On Thursday, OPEC trimmed its 2008 estimate of world oil demand growth, citing higher prices and slower economic momentum in major industrialized countries including the United States.

Global oil demand was projected to grow by 1.35 percent in 2008, compared with a previous estimate of 1.4 percent, OPEC said in a monthly survey.

The oil market was also supported by strong demand from China and a weak US currency.

Crude futures were also "gaining support from persistent supply concern," said Sucden analyst Andrey Kryuchenkov on Friday.

Distillate imports by Petrochina are expected to rise by a third to 400,000 tonnes in June, as the Chinese oil giant moves to ensure energy supplies after Monday's deadly 7.9-magnitude earthquake in Sichuan province cut its natural gas-generated power capacity.

Global distillate stocks -- which include heating oil and diesel -- are also being stretched by heightened buying in Europe, with a spate of refinery outages hampering supplies.

"Demand for distillates remains strong as Europe battles with the east for additional supplies," said MF Global trader Robert Laughlin.

A softer tone in the dollar has also fuelled buying, as commodities priced in the greenback become cheaper for holders of alternative currencies.

On Tuesday, the International Energy Agency suggested growth in global oil demand would slow this year.

The IEA, an energy policy adviser to major industrialised countries, predicted that crude demand in 2008 would stand at 86.8 million barrels per day (bpd) -- about 390,000 bpd less than its previous estimate given in April.