Why oil prices are at a record high

US crude oil hit an all-time high of $101.32 a barrel on Wednesday.

Robust demand for crude, real and threatened disruptions to supply and a weak US dollar have fuelled the rally from a dip below $50 at the start of last year. Adjusted for inflation, oil is only just below the $101.70 peak hit in April 1980, according to the International Energy Agency, a year after the Iranian revolution.

Investment flows from pension and hedge funds into commodities including oil have boomed, as has speculative trading. At the same time, a global credit crunch has brought some other markets, such as the US asset-backed commercial paper market, to a virtual standstill. Some of that money has found its way into energy and commodities, analysts say.

The fall in the value of the dollar against other major currencies has helped drive buying across commodities as investors view dollar assets as relatively cheap. It has also reduced the purchasing power of Opec's revenues and increased the purchasing power of some non-dollar consumers.

Opec oil ministers have noted that although prices are rising to record nominal levels, inflation and the dollar have softened the impact.

Some analysts say investors have been using oil as a hedge against the weaker dollar. While previous price spikes have been triggered by supply disruptions, demand is a main driver of the current rally.

Global demand growth has slowed after a surge in 2004 but is still rising, despite an economic slowdown in the top consumer, the US. Higher prices have so far had a limited effect on economic growth.

Analysts say the world is coping with high nominal prices because, adjusted for exchange rates and inflation, they are lower than during previous price spikes and some economies have become less energy intensive.

The Organisation of the Petroleum Exporting Countries, source of more than a third of the world's oil, started to reduce oil output in late 2006 to stem a fall in prices. Fewer Opec barrels entering the market helped propel the rally and consumer nations led by the International Energy Agency have urged Opec to pump more oil.

At meetings in December and earlier in February, Opec left output unchanged. Some in Opec, such as Iran, want the group to cut supplies at the next Opec meeting, on March 5.