Oil prices at fresh highs despite Opec boost to output

The price of crude oil soared to an all-time high yesterday, edging past its previous record of $55.67 a barrel, in spite of the promise from Opec to supply an additional 500,000 barrels a day.

The price of crude oil soared to an all-time high yesterday, edging past its previous record of $55.67 a barrel, in spite of the promise from Opec to supply an additional 500,000 barrels a day.

The oil price rally led the FTSE 100 to take its biggest hit since last August, falling 1.25 per cent to close at 4937.6. The main European markets also closed down more than 1 per cent.

Although news of the increase in supply initially cooled oil prices yesterday, prices later soared after US government data showed that heating and petrol supplies had fallen in February.

As well as agreeing to an immediate 500,000 increase in supply, Opec, the oil cartel, said it would consider making a similar rise again. It added that its member countries had begun boosting their oil production.

Soaring worldwide demand for oil, led by strong growth in China, has raised fears that Opec will run out of spare capacity, with its output already at 25-year highs. The cartel said it would monitor the situation and "take appropriate and prompt action, when the need arises".

Julien Seetharamdoo, at Capital Economics, said Opec's move to increase supply reaffirmed his belief that prices would gradually fall back into line in 2005. He saidOpec's actions would become increasingly important in determining oil prices this year.

Mr Seetharamdoo added that while limited space capacity remained a concern in the short-term, additional supply could be provided if the price was right, through increases in production. But Gary Ross, of Pira Energy, said: "This story is not about the fundamentals, it's about the financials. The investment community is looking beyond the short-term fundamentals and wondering whether Opec can meet forward demand growth without prices going sharply higher."

Kevin Norrish, an oil analyst for Barclays, said Opec would need to increase capacity again before prices would come back into line. "In our view further substantial increases in output will be necessary later this year."

Elsewhere, copper futures hit record highs yesterday, as Chinese buying drove three-month prices through $3,307 a tonne in early trading.

Investors have piled into metals, hoping that strong demand will drive prices higher. However, like oil, prolonged demand remains dependent on China.