International oil prices hit a record high yesterday as US drivers took to the roads on their annual summer holidays.
The rise, to $75.78 (€59.12) a barrel, stoked fears that inflation could go up, leading share prices in the US and Europe to slip back.
The inflation fears were heightened yesterday by data showing that the US workforce was able to extract larger pay cheques from their employers.
US unemployment remained unchanged in June at 4.6 per cent, the lowest level since mid 2001, but average hourly earnings rose 8 cents to $16.70, a 3.9 per cent rise from a year earlier and the fastest annual pace of growth in five years.
Analysts said this could make it more likely that the Federal Reserve and other central banks would further increase interest rates, especially as the pressure from high oil prices showed no sign of weakening soon.
Robert Laughlin, senior energy broker at Man Financial in London, said: "People are talking about $80 [ a barrel]; quite frankly that looks like it could be hit sooner rather than later. Particularly if we get a large hurricane in the Gulf of Mexico over the next two months."
Demand for petrol in the US, the world's biggest consumer, has jumped to 9.6 million barrels a day in the past four weeks. This has caused concern that refineries - still struggling after last year's hurricanes shut down more than 10 per cent of US capacity - could have trouble keeping up.
Refiners are updating their plants so that they can process heavy, sour crude oil, which is now increasingly in supply, as well as the light, sweet, crude oil, whose volumes are dwindling.
Joseph Stanislaw, senior independent energy adviser to Deloitte Consulting, said: "The fears are related to the summer time. Consumers are still driving and using petrol and the light crudes that produce a higher proportion of petrol are not in abundant supply."
The move by oil producers to develop heavy oil fields more quickly than new refinery units are being added was illustrated this week by Saudi Arabia. It cut the price of its heavier oil and raised the price of its light oil.
But high oil prices are also being caused by a second seemingly intractable problem: fears that geopolitical tensions could suddenly interrupt oil flows when the world has only a slim cushion of emergency supplies.
Prices drew early support from a US government report on Thursday showing gasoline demand grew by 1.4 per cent in the last four weeks from a year ago. "While the global economy is staying strong, demand is going to be very supportive," said Tony Dolphin of Henderson Global Investors. "I don't see oil falling back a lot. I think it is likely to remain in a range and perhaps gradually drift higher."
