Oil passes $126 a barrel

Oil surged to fresh highs, hitting $126 a barrel yesterday afternoon as Opec dismissed Washington's calls for production hikes and tensions continued to run high between the US and Venezuela. The prices rises were fuelled by the continued weakness of the dollar and could not have come at a worse time as the US summer driving season gets under way.

Brent crude hit a record high of $125.90 while the main New York contract for delivery in June hit $126.20. Prices have more than doubled since this time last year, and have risen by a quarter since the start of 2008.

Tension with Venezuela has been stoked by reports that have suggested closer ties between the county's firebrand left wing president Hugo Chavez and guerrillas seeking to overthrow Colombia's Government leading to fears of US sanctions that could be reciprocated by Chavez cutting the US supply off.

The situation was not helped by comments from Abdalla Salem el-Badri, the secretary general of Opec, who said he believed that there was “clearly no shortage of oil in the market”. The 13-country-cartel, of which Venezuela is a member, produces 40 per cent of the world's oil.