Oil prices rose amid concerns that demand will outstrip supply, pushing crude back to record levels.

New York light, sweet crude was up $2.39 to $133.70 per barrel. In London, Brent crude rose $2.06 to $133.08.

A number of factors have pushed oil up, including fears about declining US inventories, and a report from oil firm BP saying that production had fallen.

Last week oil hit a record of more than $139, and analysts have warned that it may even power past the $200 mark.

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Falling inventories?

The higher oil price is partly due to the fact many analysts believe data on Thursday will show a decline in US inventories for the fourth week running.

At the same time, a report from British oil giant BP highlighted an imbalance in production and consumption trends.

In its Statistical Review of World Energy, BP said that oil consumption increased by 1.1% in 2007, while production fell by 0.2%.

BP attributed this to the Organization of Petroleum Exporting Countries (Opec) cutting production in November 2006 and in February 2007, and oil fields in various parts of the world reaching maturity.

Demand for oil is on the increase as emerging countries such as China and India look to fuel their expansion.

China recently said it had imported 25% more oil in May to support repairs in regions that were damaged by the massive earthquake that killed thousands of people.

The world's second-largest crude oil consumer imported some 3.8 million barrels a day, or a total 16.2 million metric tons for the month, to aid with reconstruction after the natural disaster.

Fading greenback

As well as supply and demand issues, a weaker US dollar has also pushed up the price of oil as investors look to offset the drop in the currency by buying other, better performing assets.

Investors are increasingly using oil as a hedge - or protection - against a weaker dollar, investing in one when the value of the other falls.

There also have been geo-political issues behind the oil price increases, such as fears that the US will attack Iran in an attempt to stop Opec's second-largest oil producer from developing nuclear capabilities.

Analysts have said that despite the recent fluctuations in price, oil is unlikely to fall significantly and, if anything, the danger is that prices will surge even higher.

On Tuesday, the boss of Russian oil producer Gazprom said that he expected oil prices to get as high as $250 a barrel, even more than the $200 figure forecast by some of Wall Street's top analysts.

(BBC)

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