World oil prices rose yesterday but fell short of the all-time highs hit on Thursday as fears remain of a supply crunch later this year.
US light crude was up 30 cents at $56.70 a barrel, less than a dollar under the all-time peak of $57.60 hit on Thursday. London Brent was up 34 cents a barrel to $55.40 after hitting $56.15 in the previous session.
"Record demand growth and limited spare production capacity - it is a recipe for volatility," said Geoff Pyne, consultant to Standard Bank in London.
"We may see a short-term correction if stocks build up but it is clear that Opec will struggle to provide enough supply - not just this year but over the next two-three years," he added.
Prices in New York and London raced to all-time highs this week as traders shrugged off Opec pledges for extra supply and doubted whether inventory levels and flagging crude output were enough to satisfy the world's seemingly unquenchable oil thirst.
A refinery glitch at the gasoline unit at BP's Texas City plant - one of the largest in the United States - added to fears of shortages during the high-demand summer, dealers said.
Analysts say the strength in the oil price is more evident looking at the futures curve for forward months. US crude for August is trading for instance at a $1.50 premium to April.
Opec on Wednesday announced an immediate 500,000 barrels per day output increase, with another half a million bpd to come if prices failed to ease. Top producer Saudi Arabia said the extra oil was meant to ward off an end-2005 supply crunch.
But with output already near a 25-year high, the group is stretched to meet demand growth. Other major exporters Russia and Norway also cannot add significantly to this year's supply.
Oil producers blame speculators, who have built up near-record length in commodity markets, for volatile prices.
Analysts are now watching for a US interest rate hike that could bring back some money from oil and trigger lower prices.
Mr Pyne said many of the funds were no longer driven by short-term charts.
"The funds have sensed something about the demand and supply situation. Many of them are focusing now on the medium term."
