Oil prices surge, touch new record at $139 a barrel

Oil prices have shot up more than $11 to a new record above $139 after Morgan Stanley predicted prices would hit $150 by July 4.


Oil's meteoric surge, which pushed prices more than 8 per cent higher in a single day, added to a huge increase on Thursday to cap oil's biggest two-day gain in the history of the New York Mercantile Exchange. The burst higher - which also came on rising Middle East tensions - also raised the prospect of accelerating inflation by adding to already strained transportation costs.


That gloomy outlook sent stocks tumbling, taking the Dow Jones industrials nearly 400 points.


Light, sweet crude for July delivery jumped as high as $139.12 on the Nymex, before easing slightly to settle at $138.54, up $10.75. Prices hit a previous record of $135.09 a barrel on May 22, and settled Thursday at $127.79.


Brent crude on the ICE futures exchange settled $10.15 higher at a record $137.69 a barrel, after hitting an all-time high of $138.12 a barrel.


Prices pushed sharply higher on Thursday after Morgan Stanley analyst Ole Slorer predicted strong demand in Asia could drive prices to $150 by American Independence Day (July 4), when millions of citizens are expected to take to the roads. Slorer said shipments from the Middle East are mimicking patterns seen in the third quarter last year, when Morgan Stanley based an oil price spike prediction on falling supplies in the Atlantic.


Traders also zeroed in on remarks by an Israeli Cabinet minister, who was quoted as saying his country will attack Iran if it doesn't abandon its nuclear programme. Transportation Minister Shaul Mofaz added that Iranian President Mahmoud Ahmadinejad "will disappear before Israel does," the Yediot Ahronot daily reported.