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Oil sets new record highs in New York, London on supply fears, Chinese demand

Forbes.com: Thomson Financial News: Oil sets new record highs in New York, London on supply fears, Chinese demand

04.22.08, 9:08 AM ET

LONDON (Thomson Financial) – Oil surged to new record highs on both sides of the Atlantic as supply fears and strong Chinese demand sparked off a fresh round of buying.

New York-traded West Texas Intermediate crude contracts for May delivery, which expire today, rose to a record $118.05, before easing back to trade at $118.00 by 12:46 p.m., up 52 cents from yesterday’s close. The next forward month WTI contract for June is currently trading up 48 cents at $117.11 a barrel.

Meanwhile in London, Brent crude for June delivery was trading up 52 cents at $114.95, having earlier touched a new high of $115.03.

‘For the moment, there does not seem to be anything stopping the price juggernaut we are seeing in energy,’ said MF Global analyst Ed Meir.

Oil has hit a series of record highs in recent sessions as supply fears have once again risen to the fore, with militant attacks in Nigeria and the potential shut-down of the 200,000 barrel per day Grangemouth refinery in Scotland catching trader’s attention.

Royal Dutch Shell PLC (nyse: RDSA – news – people ) said yesterday it may not be able to cover some April-May supply contracts totaling 169,000 bpd from its joint venture in Nigeria, after The Movement for the Emancipation of the Niger Delta (MEND) damaged a key pipeline on Thursday.

The militant group yesterday claimed to have hit two more pipelines operated by Chevron (nyse: CVX – news – people ) Corp. and the Shell joint venture in southern Rivers state. However, Nigerian oil minister Odein Ajumogobia said on Tuesday that there would be ‘no significant’ interruptions to oil supply.

Fears some North Sea production could be disrupted, with a scaled shut-down of the Grangemouth refinery underway ahead of a two-day strike planned for this Sunday, has also contributed to supply jitters.

Management and unions are due to meet at conciliation service Acas in London this afternoon in a bid to break the current negotiation deadlock over proposed changes to staff pension schemes.

Refinery owners Ineos have claimed the plant may need to close for a month if it is to affect a shut-down and restart safely due to the planned strike. Much of the North Sea’s oil and gas production passes through Grangemouth, the only refinery in Scotland, Ineos said in a statement.

Booming demand in China, which imported a record 4 million bpd of crude in March and quadrupled diesel imports to 494,192 tonnes ahead of the summer Olympics, has also contributed to heightened fears over stretched supplies.

Short-term hopes for higher oil exports from the Organization of Petroleum Exporting Countries (OPEC) to help cool record prices were dashed yesterday, with cartel members repeating the group’s stance that there is no shortage of supplies in the market.

However, OPEC plans to increase production capacity by 5 million bpd by 2012, the cartel’s secretary general Abdulla Salem El-Badri said at an international energy forum in Rome on Tuesday.

International Energy (otcbb: IENI.OB – news – people ) Agency chief Nobuo Tanaka has expressed concerns that recent price gains in crude could push the global economy into a recession. However, he has agreed with OPEC’s stance that markets are currently well supplied, while attending the joint producers and consumers forum in Rome.

Weakness in the U.S. dollar is also contributing to the run-up in prices, analysts said. With the dollar sinking close to $1.60 against the euro, commodities traded in the U.S. dollar have become relatively cheaper for overseas investors. Some financial investors are also using oil future contracts as a hedge against ongoing weakness in the greenback.

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