Oil prices ease after record high

Jun 27 2008 Liverpool Daily Post

OIL prices eased slightly today after surging yesterday to a new record high of more than 140 US dollars a barrel.

The cost of crude hit 140.39 dollars in commodity trading in New York yesterday following comments from the President of production cartel Opec that prices could rise to 170 dollars this summer.

But oil slipped around one dollar to 139.42 dollars in early electronic trading today.

Yesterday’s five dollar spike sent stock markets diving both here and in the US as investors fretted over the implications of high oil prices for the economy.

London’s FTSE 100 Index slumped nearly 3% as trading was also overshadowed by gloomy outlooks for inflation from the Bank of England, while New York’s Dow Jones Industrial Average fell more than 3% to its lowest close in nearly two years.

Brokers today forecast the Footsie to fall around 20 points when it opens this morning, sending it below the 5500 barrier.

Earlier this week the AA revealed that average diesel prices in the UK hit £6 a gallon for the first time - 35% dearer than a year ago.

Opec president Chakib Khelil forecast that the cost of crude would rise to between 150 dollars and 170 dollars a barrel this summer.

The Algerian energy minister said in an interview with French television channel France 24 he hoped the oil price spike would ease back later in the year and dismissed market fears of a surge above 200 dollars a barrel.

But he cautioned that a major market crisis, such as production stopping in Iran, could see prices rise to 200 dollars or more.

Opec’s grim forecast for summer oil prices comes as calls mount for the group to increase oil production and help reduce soaring fuel inflation.

Gordon Brown is among a raft of western leaders to have put pressure on Opec as inflation rockets on the back of higher oil and energy bills.

Bank of England Governor Mervyn King told MPs yesterday that in “real” terms, when inflation is stripped out, oil prices are now as high as they were in the 1970s.

He also warned that a further rise in oil prices posed the biggest threat to efforts to bring runaway inflation under control. Soaring fuel prices helped drive up the official cost of living index by 3.3% in the year to May, its highest level since records began more than 11 years ago.