The oil market yesterday shrugged off a Saudi Arabian pledge to increase capacity, sending crude prices to fresh highs above $50 (€40.5) a barrel amid concerns that high fuel prices would hit global economic growth.

The world's largest oil exporter said it would increase production capacity to 11 million barrels a day (b/d), about 1.5 million b/d above the amount it produced last month.

Saudi Arabia, which has a quarter of the world's oil reserves, has so far only produced more than 10 million b/d during the Iraq war, the Gulf war and in the aftermath of the 1979 Iranian revolution, which triggered the second oil shock.

Saudi Arabia's move came as bond yields in Europe and the US remained near six-month lows on growing scepticism over global growth prospects.

High oil prices have traditionally led to higher inflation, but with oil contributing a smaller component of the global economy than during the oil price spikes in the 1970s, investors say the effect of high oil prices may be more muted this time.

The rise of more than 50 per cent in oil prices this year also sent the currency values of large oil-importing nations into decline, with the Japanese yen reaching a six-month low against the euro. Japan is the world's second-largest oil importer after the US, and is also a large importer of other raw materials such as copper and iron ore, which have also seen steep price rises this year.

World equity markets, which came under pressure on Monday as oil prices reached the $50 mark, were calmer yesterday. On Wall Street, the Dow Jones Industrial Average was up 0.5 per cent by mid-session at 10,041.34, while in Europe the FTSE Eurotop 300 index closed 0.5 per cent up at 990.44. In Dublin, the ISEQ index was down 0.1 per cent.

The latest jump in the oil price follows growing unrest in Nigeria, one of the world's top 10 oil exporters, where rebels have threatened war against the state and told foreign oil companies to shut their operations by Friday.

Global oil markets are braced for another volatile day with the release of the weekly US commercial crude inventories, which have been affected by hurricanes that temporarily halted about 10 per cent of US production, disrupted petroleum refinery production and caused oil tankers to avoid the region.

Some energy analysts are forecasting another sharp fall in US crude inventories, bringing them close to the 29-year lows reached in January. The benchmark US crude futures hit a high of $50.47 a barrel, before easing to $49.90, a gain of 21 cents. In London, Brent crude futures were 37 cents higher at $46.30 a barrel.