Oil prices surged nearly $2 yesterday after a US government report rekindled fears that resilient demand from summer drivers and a spate of refinery outages could trigger a gasoline supply crunch.
The gains came against the backdrop of rising tensions in the energy-rich Middle East after the United States closed its diplomatic missions in Saudi Arabia this week due to the threat of attacks by militants.
US light sweet crude futures soared $1.93 to hit $65.00 a barrel, the highest on record, before settling at $64.90. London Brent jumped $2.08 to new peak of $64.06 a barrel, before settling at $63.99.
A US government report issued on Wednesday showed crude stockpiles in the world's biggest energy consumer rose last week by 2.8 million barrels, due to hefty imports and slower refining activity.
But the report from the Energy Information Administration also showed a 2.1 million-barrel decline in gasoline stockpiles due to strong demand from summer drivers and slower domestic production - bringing inventories below last year's level by 7.9 million barrels, or 3.7 per cent.
"Gasoline inventories are of greater concern, but the draw was smaller than in previous weeks, and we don't have that much time left in the driving season," said Timothy Evans, senior analyst at IFR Energy Services.
US gasoline demand has been running at a robust 1.4 per cent higher than a year ago over the past four weeks, despite record high retail prices at the pumps - a sign the economy is holding up against soaring energy costs.
While crude prices are running at their highest on record in nominal terms, when adjusted for inflation they remain below their 1980 height over $82.
Crude oil producers and refiners have struggled to keep up with demand growth over the past two years, reducing the spare capacity needed to make up for any sudden shortfall.
Worries over that scenario grew this week when the US temporarily shut its missions in Saudi Arabia because of a security threat in the world's top oil exporter.
In addition, Opec's second biggest producer, Iran, pressed ahead with its nuclear work in defiance of the European Union.
Opec producer nations, which control about 40 per cent of the world's oil exports, have been pumping at their highest levels in decades in an effort to cool prices.
Venezuela's oil minister said yesterday the cartel has done all it can to boost oil supply, but global prices will probably hold at current levels.
"We have said that this is a structural issue, not a short-term factor, and the price is going to stay the same," oil minister Rafael Ramirez told reporters during a visit to Uruguay.
The Opec president blamed refinery bottlenecks for record oil prices.
