Venezuelan strife sends oil through $37

Oil prices surged to their highest level since the Iraq war yesterday on fears that political strife in Venezuela could spin out of control.

In New York, prices broke through the $37 (£20) barrier to hit $37.20, its highest point since mid-March last year, just ahead of the US and British invasion of Iraq.

Traders rushed to build up their holdings following Thursday's surprise announcement by Milos Alcalay, Venezuela's ambassador to the United Nations, who said he was resigning in protest at the policies of president Hugo Chavez.

The move was seen as support for demands that the left-wing leader submits to a recall vote, which could trigger a fresh bout of instability.

The speculation, combined with expectations that Opec will keep its vow to cut output next month and figures showing a shortage of supply in the US, pushed up prices. The Bush administration said it was "extremely concerned" about surging gasoline prices.

The US Energy Information Administration (EIA) warned that with gasoline stocks below normal levels, any problems at a refinery or pipeline might trigger supply disruptions and push up prices.

Venezuela, which is the fourth-largest source of US imports, has threatened to stop all oil shipments to the US if Washington tries to blockade or invade it.

Meanwhile, Opec, the oil producers' cartel which pumps a third of the world's oil, plans to cut production by 2.5 million barrels a day by 1 April.

Venezuela said on Thursday that Opec would stick to its decision to cut production limits in April, despite rising prices. "We are firm in our decision to keep the one million barrel per day production cut to maintain our prices," the oil minister, Rafael Ramirez, said.

Opec's council of ministers meets on 31 March to discuss output policy. Saudi Arabia is due to decide export volumes for April in a week's time, while Iran, the UAE and Nigeria have already informed refiners of lower supplies from 1 April.

Guy Caruso, the head of the EIA, said yesterday that US gasoline demand was too strong for Opec to carry out an oil production cut. He said that if Opec did not cut its oil production, world crude inventories would begin returning "toward normal" levels.

Meanwhile, John Snow, the US treasury secretary, warned that reliance on imported oil posed a threat to growth and national security. He said that it was time to look again at letting oil companies drill in the Arctic National Wildlife Refuge (ANWR), a proposal which is opposed bitterly by environmental groups.

"Through greater access to reliable and dependable US energy supplies like ANWR, we lessen our dependence on supplies from other, less secure, parts of the world," Mr Snow said.