US oil prices rose towards $42 a barrel this morning amid worries over disruptions to Middle East supplies at a time when world producers are pumping almost flat out to meet robust demand.
US light crude climbed to $41.77 a barrel, within 70 cents of a 21-year peak of $42.45, the highest price since crude futures were launched on the New York Mercantile Exchange in 1983.
Earlier, prices had eased to $41.62, down 2 cents.
Dealers said prices were approaching key levels where investors were likely to sell to cash in profits. Speculative hedge funds have been seen buying oil in the last couple of weeks as the US dollar has weakened.
US oil prices have surged $6, or 17 per cent, in the last three weeks on concerns that a lack of spare production capacity has left supplies vulnerable to a major disruption at a time when demand is growing at the fastest rate in more than two decades.
Militant attacks in Saudi Arabia, the world's biggest oil exporter, and Iraq have also raised concerns of a major supply disruption.
Saboteurs attacked another oil pipeline in northern Iraq yesterday, but exports from the south of the country remained stable at about 1.7 million barrels a day.
Top oil exporter Saudi Arabia may boost production close to 9.5 million barrels per day (bpd) in August, a 400,000 bpd rise on this month, to meet customers' demand for more crude, a Gulf industry source said today.
The kingdom, OPEC's leading oil producer, has been pumping about 9.1 million bpd since June to try to cool a relentless rally that has pushed US prices beyond $40 a barrel.
"Saudi Arabia might be as high as 9.5 million for the month of August," the Gulf industry source told Reuters. "They're trying to satisfy their customers. When buyers start asking for more oil, Saudi Arabia gives it to them."
He said stubbornly high oil prices were not being driven purely by market fundamentals.