Oil surges to record on US supply fears

OIL prices rose sharply yesterday, briefly climbing above $80 a barrel as the previous day's decision by OPEC to increase output modestly was shrugged off by markets worried about stock levels this winter.

A barrel of US light, sweet crude for October delivery rose $1.68 to settle at a record $79.91 in New York after rising as high as $80.18 earlier. In London, October Brent crude gained $1.30 to settle at $77.68 a barrel.

The price was reached after crude oil stocks in top consumer the United States fell 7.1 million barrels last week to their lowest level in eight months amid a drop in imports. Analysts had expected a fall of 2.4 million barrels.

"The reality is that the crude tightness in Europe and Asia has begun to affect the US market in a big way," said Antoine Halff, an analyst at Fimat Research in New York. "In retrospect, it validates OPEC's decision to increase production."

OPEC agreed to raise crude output by 500,000 barrels per day from 1 November at its meeting in Vienna on Tuesday, in a gesture to consumer nations concerned about the economic impact of high oil prices and rapidly diminishing fuel stocks. The ten countries bound by the new agreement were already pumping almost one million barrels per day (BPD) above their nominal ceiling.

Heavyweight oil stocks were buoyant after the oil price rise. BP added 0.7 per cent while rival Royal Dutch Shell climbed 1 per cent.

• The US dollar has fallen to a record low against the euro as investors bet that the Federal Reserve will cut interest rates to help the economy. By late afternoon in Europe, it took $1.3901 to buy a euro, passing the last record of $1.3852 set on 24 July.

Many analysts predict that the Fed will cut rates next week as it looks to reassure markets and consumers amid a global credit crunch.

The dollar has weakened against the euro for six sessions in a row.

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