Oil Price Surges After 'super Spike' Warning

The cost of crude oil moved into record territory today as markets were unnerved by a Goldman Sachs report predicting a "super spike" in oil prices to $105 (£55.66) a barrel.

US light crude rose 38 cents to $55.78 a barrel, moving back toward March 17's record high of $57.60, while London's Brent crude climbed 61 cents to $54.90 a barrel.

The bounce in prices came after Goldman Sachs, one of the world's biggest traders of energy futures, issued a report yesterday saying that markets had entered a period in which strong demand and tight supplies could cause a "super spike" in prices. According to the report, energy prices will only return to lower levels once they hit a level at which demand weakens and spare capacity is created.

Prices have climbed 28% this year amid signs that strong economic growth in China and the US will strain world supply, leading to heavy buying from speculative funds.

Price jumped 2.6% yesterday following the report, but they have also come under pressure amid growing concerns about falling petrol stocks in the US ahead of the peak summer demand, caused by holiday driving.

The market has also been affected by an explosion at a BP refinery in Texas last week which killed 15 people. The Texas City plant where the explosion happened accounts for about 3% of the supply of petroleum products in North America and processes 430,000 barrels of crude oil a day.

Demand for petrol in the US has been running 2% higher than last year over the past four weeks, despite record pump prices. The US energy information administration (EIA) reported on Wednesday that petrol stocks fell by 2.9 million barrels to 214.4 million barrels last week, the fourth decline in a row.

Meanwhile, the Financial Times reported that the International Energy Agency (IEA) is set to advise importers to adopt emergency oil-saving policies if daily global supplies fall by 1-2 million barrels.

The figure was well below the official trigger of 7% of global supply, equivalent to 6 million barrels a day, agreed in the IEA's foundation treaty. The agency was created to advise 26 industrialised nations on energy policy after the oil crisis of the 1970s.

According to the FT, a warning to set up "demand restraint policies" in the transport sector, such as driving bans or shorter working weeks, is contained in a study to be published next month during the annual IEA meeting of energy ministers.