The prices of crude oil in the on the international market rose to new record highs on Wednesday stoking fears about potential damage to the world economy.
Consistent with the trend established since the beginning of the year, light sweet crude September future hit $44.30 per barrel, 15 cents above Tuesday's close and the highest since oil futures began trading on the New York Mercantile Exchange in 1983.
On London's International Petroleum Exchange, benchmark Brent crude futures rose by 35 cent to touch an all time high of $40.99 per barrel, before slipping back to $40.86.
Oil prices have risen by more that 35 per cent since January largely due to fears of supply disruptions in the Middle East, growing demand from Asia, low stocks in the United States and Europe and the action of speculators.
Lately, the financial crises at Russia's largest oil company' Yukos, which pumps two per cent of the world crude and confirmation of beliefs that the Organisation of Oil Exporting Countries has reached peak production levels have help heat up the market.
Some analysts have already expressed fears that the bull run in the oil market could see prices hitting the $50 per barrel mark, one considered impossible.
According to Reuters analysis, allowing for inflation, current prices are near the level hit during the 1973 oil embargo and just over half those during the oil price shock that followed the 1979 Iranian revolution.
But analysts warned that rising prices are set to damage expanding economies which rely on oil imports, such as India, Asia's fourth-largest economy, which imports 70 percent of its crude oil requirements.
Nigeria, which has become a net importer of refined peteoleum products could also be hit as the Nigeria National Petroleum Corportaion, which has helped to keep prices in check thrugh cotly subsidies has indicated severally that it could no longer afford to do so.
Local oil companies are already pushing for pump a price increase, which is bound to trigger another spate of protest by labour unions.
OPEC, which had been a major determinant of the swings in the international oil market, on Tuesday admitted that it was helpless in the situation as it had little sapre capacity to pump oil that could cool prices.
OPEC President, Mr. Purnomo Yusgiantoro of Indonesia, said that Saudi Arabia, the world's biggest exporter, had spare production capacity but could not raise output immediately.
Saudi Arabia's which is already pumping about 9.5 million barrels per day is estimated to have only one million barrels per day spare capacity but this cannot be immediately produced as the oil wells are yet to be streamed.
"The oil price is very high, it's crazy. There is no additional supply," Purnomo told reporters in Jakarta.
Fears of a major distruption in the supply chain at a time when global oil demand is growing at the fastest pace in more than two decades were heightened by attacks on an oil pipeline in Iraq.
Saboteurs on Tuesday blew up an oil pipeline that supplies Iraq's main refinery and feeds in to the main northern export line, which had already been closed for two months.
Iraqi exports of about 1.8 million barrels per day were severely disrupted in May and June due to sabotage on key pipelines in the south of the country feeding the main oil terminal Basra.
"OPEC's spare capacity is at a historic low level," said Tony Nunan, the manager at Mitsubishi Corp's international petroleum business.
"Even if something that could disrupt oil exports, like the Iraq war and Venezuela's strike, happens again, OPEC can't boost production immediately to offset it this time."
The Organization of the Petroleum Exporting Countries, excluding Iraq, lifted output in July to near the highest level in 25 years at 27.57 million bpd as record-high prices enabled members to pump close to full tilt, a Reuters survey showed.
Saudi Arabia, which made up most of the July increase, has said it would produce 9.5 million bpd in August, just one million bpd below the country's full capacity.
Oil traders are also nervous that strong demand is preventing global stocks from building ahead of peak winter demand.
