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The price of oil set another new record on Wednesday amid "fears of a looming global shortage," the Financial Times of London said.[1] -- "NYMEX July West Texas Intermediate rose more than $4.50 to a fresh record of $133.82 a barrel, and later traded at $133.56 a barrel," Sarah O’Connor and Javier Blas reported. -- U.S. Energy Secretary Sam Bodman and OPEC representatives jousted over the role that speculation is playing in the spectacular price rises. -- AFP emphasized "rising Chinese demand" as a factor in the latest rise.[2] -- Business Week noted that "Retail gasoline prices, meanwhile, reached another record high of $3.81 per gallon" and that the price of crude oil has almost doubled in the past year. -- On the question of speculation, Moira Herbst said: "Some analysts say the declining dollar and a troubled stock market are spurring massive investment inflows into commodities, causing the current price spike. On May 20 a hearing before the Senate Committee on Homeland Security & Governmental Affairs attempted to address the price impact of the so-called swaps loophole. The loophole refers to the Commodity Futures Trading Commission's (CFTC) allowing investment banks such as Goldman Sachs (GS) to take unlimited positions in futures markets. Institutional investors like pension funds, meanwhile, enter into swap agreements with these banks. -- While analysts at Goldman Sachs insist supply and demand are the prime factors in the oil markets, others say investment flows are creating a self-fulfilling prophecy of high prices. 'Performance-chasing financial inflows to commodities cause prices to rise, thus delivering good performance, and attracting even more inflows,' Lehman Brothers (LEH) analyst Edward Morse wrote in a May 16 report, 'Is It a Bubble?'" -- As usual, these accounts make no mention of Peak Oil, despite Monday's Financial Times analysis that said that "Many in the [oil] industry itself now accept that supply constraints are shaping the price as much as rampant demand." ...

Oil prices on Wednesday rose to fresh record high of almost $134 a barrel and fears of a looming global shortage pushed the cost of long-term oil prices beyond $140.

Investors were increasingly worried that oil supplies, particularly from non-OPEC countries, would be unable to meet rising demand in the next 10 years.

NYMEX July West Texas Intermediate rose more than $4.50 to a fresh record of $133.82 a barrel, and later traded at $133.56 a barrel. ICE July Brent also hit a record, jumping $5.21 to $133.05 a barrel.

Spot prices pushed through Tuesday’s record early in the session, and gathered pace after U.S. government data showed domestic crude stocks fell last week by 5.4m barrels, leaving total crude oil stocks 6.5 per cent lower than last year.

The market had expected a weekly rise in reserves, and was spooked that the fall could have been even larger were it not for a rise in the less important U.S. West Coast region.

Petrol and heating oil stocks were also lower than the market predicted, driving their spot prices to record levels. NYMEX June heating oil added 7 cents to $3.8492 a gallon and Nymex June gasoline was 6½ cents higher at $3.3740 a gallon.

Long-dated oil futures outstripped spot prices as investors worried about prolonged supply problems. Oil to be delivered in December 2016 rose to $140.50 a barrel, $2.10 higher on the day.

Some traders said big investors closing up short positions -- bets the oil price will fall in the future -- could have caused the jump in oil futures. The number of contracts outstanding -- or open interest -- for delivery between December 2011 and December 2016 declined as prices rose.

Sam Bodman, U.S. energy secretary, said the record oil price reflected tight supplies and strong global demand and was not the fault of speculators.

His comments directly contradicted an OPEC statement made earlier in the day. The oil cartel said the price was not driven by fundamentals because there was plenty of supply. Abdullah al-Badri, OPEC’s secretary general, said this week that speculators were driving the price, echoing comments by key member states, such as Iran and Iraq.

Gold followed oil’s lead as the rising cost of crude stoked global inflation fears. Spot gold in London rose 1 per cent to $929 an ounce, its highest price for a month.

Platinum made bigger gains after a sluggish session on Tuesday, up 3.2 per cent at one point to $2,198.56. It has only ever cost more than this for four days in March, when power shortages in key mining country South Africa drove the price to a record $2,290 an ounce. Traders, analysts and mining companies are meeting in London this week to discuss the precious metal and most of them are bullish.

The cost of three-month aluminium rose to $3,020 a ton after trading beneath the $3,000 level on Tuesday. Gayle Berry at Barclays Capital said the increase was more pronounced in five-year aluminium futures, where the price hovered near a record high.

“Aluminium is by far the most energy-intensive metal to produce,” she said. “Now we’ve seen this tremendous move in oil prices, I think aluminium will face steep increases in production costs.”

Ms. Berry added that production forecasts for China, which produces almost a third of the world’s aluminium, looked too optimistic.

NEW YORK -- Oil struck new highs above 133 dollars a barrel Wednesday after the U.S. government reported unexpected declines in crude and gasoline stocks in a market pressured by rising Chinese demand.

New York's main oil futures contract, light sweet crude for July delivery, crossed 130 dollars for the first time then hours later raced to a record high of 133.82 dollars after the worrying U.S. energy stockpiles report.

The benchmark futures contract closed a whopping 4.10 dollars higher at a record 133.17 dollars.

In London, Brent North Sea crude for July delivery settled at a record 132.70 dollars a barrel, a gain of 4.86 dollars. Brent hit a record intraday high of 133.34 dollars.

An already rallying oil market was galvanized by the U.S. Department of Energy's weekly snapshot of energy inventories, which unexpectedly showed declines.

The DoE report Wednesday showed US crude oil stocks fell in the week ended May 16, by 5.4 million barrels to 320.4 million barrels. Most analysts' had expected a build of 300,000.

Gasoline inventories dropped by 800,000 barrels, to 209.4 million, confounding expectations of a gain of 250,000 barrels.

The gasoline news was particularly market-sensitive, coming days ahead of the U.S. summer-holiday driving season that kicks off this weekend for the Memorial Day holiday Monday.

Americans have already begun buying less gasoline as prices at the pump hit new highs. The change in driving habits is raising concerns about a slowdown in consumer spending, the main engine of the world's biggest economy.

The U.S. oil inventory data "is going to put more pressure on the already record-high prices of crude oil futures," IFR analysts said in a note to clients.

The rapid surge in oil prices came as the U.S. Federal Reserve slashed its 2008 growth forecast for the U.S. economy, the world's biggest oil consumer .

The Fed on Wednesday slashed its 2008 economic growth forecasts to a range of 0.3 to 1.2 percent, from its prior forecast of 1.3 to 2.0 percent in January. The central bank cited higher oil prices as a key factor weighing on momentum.

Crude futures have soared by a third in value since the start of 2008, when they breached 100 dollars for the first time.

Oil prices are also surging because of a weak dollar, which makes dollar-priced commodities cheaper for buyers using other currencies.

Analysts noted that a need for diesel-fueled power generation in earthquake-affected areas of China was boosting demand for the fuel.

"Fundamentally the crude prices are being supported by concerns over gasoline supplies ahead of the U.S. driving season and on increased demand for diesel from China as they look to boost supplies ahead of the Olympics and after last week's earthquake," said Sucden analyst Nimit Khamar.

On the supply side, OPEC head Abdalla Salem El-Badri said Wednesday he was worried about volatility in the oil market.

"The secretary general expressed concern about the volatility that has characterized the market in recent times," the Vienna-based cartel said in a statement from Caracas, where El-Badri met Venezuelan President Hugo Chavez as part of a week-long working visit to OPEC members Venezuela and Ecuador.

"OPEC will continue to strive to bring stability to the oil market," the statement said.

OPEC has insisted that the market is well supplied and that record prices reflect speculative investment activity rather than underlying supply and demand conditions.

** With a surprise drop in inventories, crude crosses $133 a barrel -- and many see further gains **

Oil prices raced past $133 a barrel for the first time on the New York Mercantile Exchange as traders responded to a May 21 inventory report that showed supplies lower than many analysts had expected. The price on the July contract for West Texas Intermediate surged 3.2% to $133.72 before retreating to a new settlement record of $133.17. Retail gasoline prices, meanwhile, reached another record high of $3.81 per gallon.

Crude has surged 95% in the past year. Amid all that buying, many analysts see few obstacles to $150 or $200 barrels. Peter Beutel, president of the energy risk management firm Cameron Hanover, noted May 21 that traders once put little weight on weekly stockpile reports. These days, with political instability, inflationary threats, and a weak U.S. dollar, almost any spot of news drives prices.

"We used to ignore [inventory] reports, but now they're a matter of life and death," Beutel says. "Now anything can move prices. I'm convinced that if my lawnmower leaked a few drops of oil it would generate buying."

Still, analysts are quick to note that few strong conclusions can be drawn from the inventory report. "You can't learn much from [these] weekly numbers," says Stephen Schork, an energy consultant in Villanova, Pa., and editor of The Schork Report, a daily energy newsletter. "If there's another huge draw next week, we could have the makings of a trend."

With oil prices up from under $65 a year ago -- and gasoline up 19% -- analysts are debating whether there's an end in sight to the runup. They cite traditional supply-and-demand issues like rising demand from China and India, as well as the sinking dollar, as reasons for the price spike. Another school of thought says that increased inflows of speculative funds are continually bidding up the price (BusinessWeek.com, 5/21/08).

U.S. commercial crude oil inventories decreased by 5.4 million barrels from the previous week, according to the Energy Information Agency's (EIA) weekly report. Analysts had expected a modest increase. Motor gasoline inventories decreased by 800,000 barrels last week. Inventories include product being stored in the U.S. by refineries, terminals' storage locations, and pipelines.

Doug MacIntyre, senior oil market analyst at the EIA, says the inventory numbers shrank because imports were down this week. Crude oil imports fell 7% to 9.24 million barrels a day, the EIA report showed. Imports have averaged 9.86 million barrels a day so far this year, down 0.9% from the same period last year. Analysts say that as prices rise refiners may be cutting back on imports and that weather issues in the Gulf of Mexico interrupted transportation.

Further pressuring prices, the dollar continued to slide against the euro. On May 21 the euro climbed 0.8% to $1.58, though still shy of the Apr. 22 record of $160.19. Investors are using commodities like oil as a hedge against inflation and a weak dollar, rushing into the crude futures market when the dollar's value declines.

Some analysts say the declining dollar and a troubled stock market are spurring massive investment inflows into commodities, causing the current price spike. On May 20 a hearing before the Senate Committee on Homeland Security & Governmental Affairs attempted to address the price impact of the so-called swaps loophole. The loophole refers to the Commodity Futures Trading Commission's (CFTC) allowing investment banks such as Goldman Sachs (GS) to take unlimited positions in futures markets. Institutional investors like pension funds, meanwhile, enter into swap agreements with these banks.

While analysts at Goldman Sachs insist supply and demand are the prime factors in the oil markets, others say investment flows are creating a self-fulfilling prophecy of high prices. "Performance-chasing financial inflows to commodities cause prices to rise, thus delivering good performance, and attracting even more inflows," Lehman Brothers (LEH) analyst Edward Morse wrote in a May 16 report, "Is It a Bubble?"

"The temporary self-sustaining nature of financial inflows means the bull run in commodities has potentially more to go," he added, saying crude could reach $150 or $200 before a correction.