Oil prices hit fresh record highs today as US-led forces moved to crush a rebellion in the holy Iraqi city of Najaf, a move which Shi'ite Iraqi militia have warned could trigger fresh attacks on oil infrastructure.
US light crude rose 70 cents to $45.50 a barrel, the highest price in 21 years of trade on the New York Mercantile Exchange. London's Brent crude futures rose 50 cents to hit a new peak of $42.27.
Iraq's oil exports have run at half normal levels for the last four days as an uprising by an anti-US cleric threatens infrastructure in southern production centres. A pipeline sabotage attack has already cut loadings from Iraq's two offshore Gulf terminals - which account for all the country's exports - to 960,000 barrels per day compared with 1.9 million normally. Iraqi officials hoped to resume full exports later today.
Fears that tightly stretched supplies have left little leeway for any disruptions have added 19%, or $7, to a barrel of crude oil since the end of June.
A hefty and unexpected drop in US crude inventories yesterday has added to concerns that supply may not be able to keep pace with demand, which is growing at the fastest rate in 24 years. US crude inventories fell by 4.3 million barrels to 294.3 million last week, the US government said in a weekly report.
Adding to supply concerns, about 25% of US Gulf of Mexico oil production of 1.7 million bpd was shut yesterday by tropical storm Bonnie.
Traders also remain worried that the August 15 referendum on the rule of Venezuelan President Hugo Chavez could upset supplies from the world's fifth-biggest exporter. And Russia's biggest oil exporter, YUKOS, continues to battle bankruptcy, trying to avoid any disruption to its 1.7 million bpd of production.
Traders are concerned that a surge in production by the Organisation of the Petroleum Exporting Countries has left little spare capacity to cope with supply problems, despite assurances by Saudi Arabia it could increase supply.
Saudi Oil Minister Ali al-Naimi said yesterday that Riyadh was pumping 9.3 million bpd of crude and was ready to tap surplus capacity of 1.3 million bpd if required.
