Oil prices rose to a 21-year high yesterday on fears that supplies already stretched by world economic expansion could be hit by an attack on Middle East oil facilities.
US light crude touched $41.50 a barrel, an all-time high in the 21-year history of the New York Mercantile Exchange contract. London Brent stood 34 cents higher at $38.83 a barrel.
Warnings from a senior Russian official that deliveries from the world's second-biggest oil exporter have hit a ceiling after many years of growth underlined the strain on global supply.
"Realistically, the capacity of suppliers does not today meet growing demand in places such as China or India.
"And you have to take into account the state of affairs in Iraq," Mr Semyon Vainshtok, head of Russia's oil pipeline monopoly said.
Economic expansion in China, bolstered by renewed US growth, has placed world supplies under increasing strain, leaving the Organisation of the Petroleum Exporting Countries, bar top producer Saudi Arabia, pumping almost flat out to meet demand.
Oil's price surge has alarmed consuming nations worried that economic growth could suffer. So far the fears appear to have proved unfounded.
Allowing for inflation, prices are about half those during the oil price shock that followed the 1979 Iranian revolution.
Crude averaged $78 a barrel during 1980 when adjusted for inflation to 2002 prices, according to oil major BP Crude in money of the day averaged $35.69 a barrel in 1980, BP said.
"Apparently $40 crude isn't such a big deal after all, because no one seems to care in terms of consumption," said Ms Katherine Spector, analyst at JP Morgan in New York.
A lack of supply infrastructure to cope with rising energy demand has done much to create the conditions for a price spike that has added 27 per cent to the cost of crude this year.
Transneft's Mr Vainshtok said Russian exports, dominant in non-OPEC supply growth over the last five years, could go no higher without government permission for new export routes.
"We are not meeting the demand of our oil companies ... and we cannot solve the problem without building new pipelines," Mr Vainshtok said.
In the United States refineries are struggling to make enough new-specification green motor fuel ahead of peak US summer holiday driving demand.
US gasoline demand, about 45 per cent of world gasoline consumption, is growing at more than 3 per cent this year because of the growing numbers of low-mileage-per-gallon sports utility vehicles on America's highways.
Runaway Chinese consumption has sucked supplies away from other regions and eroded Asia's cushion of spare refining capacity.
More than 1,000 new cars hit the roads of Chinese capital Beijing each day as vehicle ownership widens.
Iraqi exports from its southern Gulf terminal were still running one-third below normal yesterday as engineers struggled to repair a pipeline sabotaged last week.
US-led forces foiled a suicide boat attack on tankers at the terminal three weeks ago.
The US government, especially sensitive about rising energy costs ahead of November's Presidential election, has led calls for OPEC to rein in runaway prices by raising production.
Saudi Arabia has proposed that OPEC raise output quotas by at least 6 per cent when it meets on June 3rd in Beirut.
But OPEC's proposed output hike may do little more than legitimise existing production as it is already pumping more than two million barrels a day in excess of its official limits of 23.5 million bpd.
