FACTBOX: Why oil prices are at a record high

(Reuters) - Crude oil hit a record high of $78.77 a barrel on Wednesday after a larger-than-expected drop in crude inventories in the United States, the world's top fuel consumer.

Real and threatened disruptions to crude oil supplies, constraints at refineries in consuming countries, resilient global fuel demand and a flow of investor money into oil and other commodities have pushed prices higher.

FUNDS

Investment flows from pension and hedge funds into commodities including oil have resumed in recent months after a hiatus earlier in the year due to concerns about how the global economy was moving.

Speculative trading in energy markets has boomed in recent years as investors sought to beat returns in other markets such as equities and bonds.

But in the week to July 24, speculators in the New York Mercantile Exchange crude oil market cut net long positions in a bet prices would go down, according to the Commodity Futures Trading Commission.

Net crude longs were cut to 108,782 from a record 112,287 in the week to July 10.

LESS OPEC OIL

The Organization of the Petroleum Exporting Countries, source of more than a third of the world's oil, is pumping less than in 2006 after deciding to remove barrels from the market.

OPEC agreed to curb supply by 1.7 million barrels per day, or about 6 percent, last year in two steps. The second stage took effect from February 1.

Members have made about 890,000 bpd of the pledged reduction, according to Reuters estimates. The exporter group is next scheduled to meet in September to decide production policy.

Consumer nations have called on OPEC to pump more crude to help ease prices, but the group's oil ministers insist crude supplies are adequate.

DEMAND

While previous price spikes have been triggered by supply disruptions, demand from nations such as China and the United States is a main driver of the current rally.

Global demand growth has slowed after a surge in 2004, but it is still rising and higher prices have so far had a very limited effect on economic growth.

Analysts say the world is coping well 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.