Oil prices vaulted to a 21-year high yesterday on fears that an attack on Middle East oil facilities may stress world fuel supplies already eroded by heady demand growth in China and the United States.
US light crude rose 37 cents to $41.45 a barrel, an all-time high in the 21-year history of the New York Mercantile Exchange contract. London Brent added 19 cents to $38.68 a barrel.
Warnings from a senior Russian official that oil exports from the world's second biggest exporter have hit a ceiling after many years of growth underlined the strain on global supply.
"Realistically, the capacity of suppliers does not today meet growing demand in places such as China or India. And you have to take into account the state of affairs in Iraq," said Semyon Vainshtok, head of Russia's oil pipeline monopoly.
Economic expansion in China, bolstered by renewed US growth, has placed world supplies under increasing strain, leaving the Organisation of the Petroleum Exporting Countries, bar top producer Saudi Arabia, pumping almost flat out to meet demand.
Oil's price surge has alarmed consuming nations worried that economic growth could suffer. So far the fears appear to have proved unfounded.
Allowing for inflation, prices are about half those during the oil price shock that followed the 1979 Iranian revolution. Crude averaged $78 a barrel during 1980 when adjusted for inflation to 2002 prices, according to oil major BP. Crude in money-of-the-day averaged $35.69 a barrel in 1980, BP said.
"Apparently $40 crude isn't such a big deal after all, because no one seems to care in terms of consumption," said Katherine Spector, analyst at JP Morgan in New York.
A lack of supply infrastructure to cope with rising energy demand has done much to create the conditions for a price spike that has added 27 per cent to the cost of crude this year.
Mr Vainshtok said Russian exports, dominant in non-Opec supply growth over the last five years, could go no higher without government permission for new export routes.
"We are not meeting the demand of our oil companies... and we cannot solve the problem without building new pipelines," said Mr Vainshtok.
In the United States refineries are struggling to make enough of new green grades fuel grades ahead of peak US summer holiday driving demand.
US gasoline demand, about 45 per cent of world gasoline consumption, is booming at more than three per cent this year because of the growing numbers of low-mileage-per-gallon sports utility vehicles on America's highways.
Runaway Chinese consumption has sucked away supplies from other regions and eroded Asia's cushion of spare refining capacity. More than 1,000 new cars hit the roads of Chinese capital Beijing each day as vehicle ownership widens.
Concern that Islamic militants could target oil infrastructure in the Middle East has steepened oil's surge.
Iraqi exports from its southern Gulf terminal were still running one-third below normal yesterday as engineers struggled to repair a pipeline sabotaged last week. US-led forces foiled a suicide boat attack on tankers at the terminal three weeks ago.
The US government, especially sensitive about rising energy costs ahead of November's Presidential election, has led calls for Opec to rein in runaway prices by raising production.
Saudi Arabia has proposed that Opec should raise output quotas by at least six per cent when it meets on June 3 in Beirut. Ministers will also meet informally next week on the sidelines of an energy forum in Amsterdam.
But traders say Opec's proposed increase will do little more than legitimise existing production as Opec is already pumping more than two million barrels a day in excess of its official limits.