Oil prices surged $5 to a record over $134 a barrel in Asian trading Thursday after a U.S. government report showed a surprise drop in crude stockpiles, reinvigorating fears of a supply crunch.
The gains bring oil up more than 34 percent so far this year in a rally that has raised alarm bells in consumer countries like the United States, already hard-hit by a housing slump and credit crisis.
Weakness in the U.S. dollar encouraged Wednesday's buying spree by bolstering the purchasing power of buyers holding other currencies, dealers said.
U.S. crude settled up $4.19 at $133.17 a barrel before extending its gains to $134.42 in the Asian session. London Brent crude also was higher.
The U.S. Energy Information Administration reported that crude stockpiles in the world's biggest energy consumer fell 5.4 million barrels last week, countering expectations for a build.
"This report gives the market every reason to rally," said Rob Kurzatkowski, analyst at optionsXpress in Chicago.
The fall in weekly inventories intensified concerns that supply problems will persist for years as production falls short of growth in demand. Oil for delivery in December 2016 rose above $142 a barrel on Wednesday -- making it the loftiest contract on the futures curve.
Investment bank Goldman Sachs has said it thinks oil prices will average $141 a barrel in the second half of this year and could top $200 a barrel by 2010.
U.S. Energy Secretary Sam Bodman said the government could do nothing to ease the pain of soaring fuel prices for consumers heading into the summer vacation season, when road travel typically peaks.
"We have flat (oil) production ... and increasing demand," Bodman said. "I don't think anything can be done near term."
Crude prices have risen sixfold since 2002 -- hurting consumers and businesses and contributing to a rapid increase in food prices -- as rising demand from China and other developing countries outpaces new supply.
Intensifying the crunch, tight power supplies in parts of Asia, Latin America and the Middle East have triggered a boom in demand for diesel for use in generators, propelling the related U.S. heating oil and London gasoil futures contracts to new and lofty peaks.
Investors also have been drawn into the market by a weak U.S. dollar, which has made commodities relatively cheap for holders of other currencies. The greenback slid to a one-month low against the euro on Wednesday on expectations of higher euro zone interest rates.
U.S. investor Warren Buffett, the world's richest person, said on Wednesday he expects the U.S. dollar to keep falling as policies needed to correct the slide had yet to be implemented.
The Organization of the Petroleum Exporting Countries (OPEC) has blamed oil's rally on speculation and the weak U.S. dollar and has repeatedly rebuffed calls from consumer nations for more supply.
OPEC's biggest producer, Saudi Arabia, said last week it has raised production by 300,000 barrels per day, but only to offset production problems from other members of the cartel.