Oil hits new high

Crude oil hit a new high in New York yesterday, trading above $144 a barrel as economists predicted the European Central Bank (ECB) would raise its interest rate today.

The predicted rise, in combination with an announcement from the US energy department yesterday that US oil supplies had unexpectedly dropped 1.98 million barrels to 299.8 million last week, led to the surge in prices.

Inflation in the Eurozone has prompted analysts to forecast a quarter percentage point rise in the ECB benchmark rate, currently at four per cent, to 4.25 per cent today.

A rise in the interest rate would further weaken the dollar, leading investors to buy commodities as a hedge against its falling value.

But speculators are not solely to blame for the consistently high global price of oil, according to Angus McPhail, global oil and natural resources analyst at Alliance Trust.

Mr McPhail said: "Crude oil stocks remain low on a global level, particularly in the US, where they stand at well below the five-year average.

"We believe it is very likely that we will have to face even higher oil prices than the ones we are currently seeing. Rising geopolitical risk, hurricane risk, and rising industry cost inflation are all factors which could push prices to new highs over the next three months."

Chancellor Alistair Darling said yesterday in an interview with the BBC: "We have got to ensure two things I think. One is that we can increase production of oil in the short term but also in the longer term we have got to reduce our dependency, particularly for our country, on imported levels of oil and gas."

Prime minister Gordon Brown met with oil chiefs in Saudi Arabia last week to find solutions to the soaring fuel costs. Mr Brown wants to see oil profits ploughed into renewable energy projects in the UK as a long-term answer.