Cold weather sends oil price to nine-year high

A mini-boom in commodities prices is fuelling fears that interest rates will have to rise further in the United States, Britain and Europe to curb inflation. The crude oil price is at a nine-year high, while aluminium and copper surged in London trading.

A mini-boom in commodities prices is fuelling fears that interest rates will have to rise further in the United States, Britain and Europe to curb inflation. The crude oil price is at a nine-year high, while aluminium and copper surged in London trading.

Crude oil prices rose to their highest levels since the Gulf War yesterday. Brent crude oil futures hit $26.15, while the March contract on London's International Petroleum Exchange hit its highest level since January 1991.

Oil prices have doubled over the past 12 months, from their low point of $9 in December 1998. They topped $40 a barrel at the height of the Gulf crisis in 1990.

The surge in prices was driven by cold weather forecasts in the US and by expectations that Opec, the cartel of oil producers, would extend output curbs.

March futures fell by 40 cents late yesterday on speculation that the US would put pressure on the oil producers to raise their output. A separate report yesterday showed that US oil stocks posted their largest annual decline on record as restricted supplies and rising prices led to a cut in imports

David Harding, of Winston Capital, said there could be a repeat of the commodity bull market of 1988 that followed the stock market crash. "If economic growth surprises on the upside, we might see a mini-commodity boom," he said.

The Bank of England cited the world economy - growing demand and rising import prices - as one reason for last week's quarter-point interest-rate rise.

The surge in the oil price is expected to have driven factory input prices data to new four-year highs when the data for December is published later today.

Meanwhile, in Paris Jean-Claude Trichet, the governor of the Bank of France, said yesterday that the European Central Bank had to keep a close watch on consumer prices. "Because we've seen a rise in raw materials and oil prices, there has been a tendency for consumer prices to rise as well and clearly this requires vigilance." The ECB holds its interest-rate meeting today.

Aluminium climbed to a 29-month high, while copper reached a 26-month peak on the London Metal Exchange yesterday. Credit Suisse First Boston said in a report: "In terms of base metal cycles the best of the commodity cycle is still to come."

The Goldman Sachs Commodity Index, in which energy and industrial metals account for two-thirds of the weighting, is up by 63 per cent on its low point reached in December 1998. The broader Commodity Research Bureau index is 14 per cent higher than the trough it hit in July last year.