Oil prices inched higher Friday, hitting a new record on concerns over disruptions to supplies of crude and gasoline. June light, sweet crude settled up 30 cents at $41.38/bbl after cresting at $41.56, the highest price ever recorded in 21 years of trading.

On London's International Petroleum Exchange, the June Brent blend futures moved 27 cents higher on expiry at $38.76/bbll after hitting $38.95/bbl, which matched a high last seen Oct. 10, 1990.

Concerns that instability in the oil-rich Middle East could interrupt supplies are contributing to crude's relentless climb. That instability has worsened in recent weeks, with hostilities mounting in Iraq. Attacks on oil installations in southern Iraq and Saudi Arabia have made clear the threat to supply at a time when producers have little spare capacity to cover shortfalls.

Such concerns have been around for some time, but events in Iraq and the latest attack in Saudi Arabia have had a huge influence on the psychology of the market. There are also solid fundamental reasons for high oil prices, including strong demand growth is strong, lower than normal US petroleum inventories, and lack of production capacity outside OPEC to allay market concerns about possible shortages, especially in the event of a serious blow to oil industry infrastructure.

05/17/04