Oil prices race to record highs
(CNN) -- Oil prices are continuing to rally on the back of surging global demand, with London's benchmark Brent crude futures hitting a record $55 a barrel in Asian trade on Thursday.
Earlier, U.S. light crude hit a record high of $56.69 on the New York Mercantile Exchange (NYMEX), before closing Wednesday at $56.46.
The previous trading high in New York was $55.67 set on October 25.
The price surge on Thursday reflects heavy demand from high-growth consumers such as China, and follows the decision by the Organization of the Petroleum Exporting Countries (OPEC), the world's main oil exporting cartel, to raise output quotas.
Oil analyst Thomas Wallin, president of the Energy Intelligence Group, told CNN that there was also another dimension to oil demand, with investors now seeing oil futures as an asset class with "very little" downside risk.
Wallin said there was now not a lot of surplus capacity available within OPEC of the quality that the market demanded.
At an OPEC meeting in Iran on Wednesday, members agreed to raise production limits by 500,000 barrels a day to 27.5 million bpd. (Full story)
OPEC President Sheikh Ahmad al-Fahd al-Sabah was also given the power to trigger another 500,000 bpd increase later in the second quarter should prices stay high.
Saudi Oil Minister Ali al-Naimi said Riyadh was aiming to bring crude down to $40-$50 a barrel.
Oil ministers have scheduled their next meeting for June 7.
Wallin told CNN that a political shock in any of the main oil supply countries posed a "real risk" that oil prices of $100 a barrel could happen.
He said a price of that level would have a big economic impact on global growth, but noted that even the current prices were having a long-term impact.
In New York on Wednesday, oil prices hit a record high after a report showed sharper-than-expected declines in gasoline and heating oil inventories.
Crude oil for April delivery jumped $1.41, or 2.6 percent, to close at $56.46 after going as high as $56.69 -- well above the previous record close of $55.17 set on October 22 and the record trading high of $55.67 set on October 25.
Oil supplies rose last week while inventories for gasoline and distillate, which is used for heating, fell more than expected, the Energy Information Administration (EIA) said in its weekly report Wednesday.
According to the report, gasoline stocks fell 2.9 million barrels to 221.4 million barrels. Analysts polled by Reuters had expected a drop of just 800,000 barrels.
Distillate stocks fell 1.9 million barrels to 107.3 million barrels. Crude stocks grew a little more than expectations by 2.6 million barrels to 305.2 million barrels.
The EIA also raised its forecast for 2005 global oil demand to 84.3 million barrels a day and said the growth in demand, especially in China and the United States is responsible for the current high prices.
"I think this price move has been justified," Phil Flynn, senior market analyst at Alaron Trading told CNN/Money.
"Demand in the world will probably hit the highest level in 30 years this summer."
"I want to pat (the EIA) on the back for admitting it," he added.
In a news conference Wednesday, U.S. President George W. Bush said he was "concerned about the price of energy" and its dampening effect on the economy.
"Demand is outracing supply and supplies are getting tight," Bush said.
