Oil hits record near $127 as Iran mulls output cut
NEW YORK (Reuters) - Oil surged to a record peak near $127 on Tuesday after OPEC producer Iran said it was studying a plan to cut output despite signs that record high prices are hurting consumer nations.
U.S. crude jumped $1.77 to $126.00 a barrel by 12.04 p.m. EDT, after striking a record $126.98 earlier. London Brent crude rose $1.10 to $124.01 a barrel.
President Mahmoud Ahmadinejad said a proposal to reduce Iran's crude output was being reviewed by experts, the semi-official Fars News Agency reported on Tuesday.
"There has been such a proposal and it is under expert review," Fars quoted Ahmadinejad as saying when asked about the possibility of the world's No. 4 producer reducing output.
Iranian Oil Minister Gholamhossein Nozari earlier said Iran was reviewing how much oil it pumps, but no decision had been taken on any changes.
"That sounds like it would get people excited. We're in a market where anything bullish is going to be able to push the price higher," said Peter Beutel, president of Cameron Hanover.
Oil rallied back after closing lower on Monday when data showed a decline in oil imports by No. 2 consumer China in April, the first year-on-year drop in 18 months, raising further questions about demand growth forecasts.
The International Energy Agency on Tuesday said record-high oil prices will slow global oil demand growth this year to 1.03 million barrels per day (bpd), 230,000 bpd less than its previous forecast.
Despite the loss, the adviser to 27 industrialized countries also said demand growth from emerging countries led by China and the Middle East remained strong.
The U.S. Senate voted on Tuesday to suspend oil deliveries to the country's Strategic Petroleum Reserve until crude prices fall below $75 a barrel, repudiating the Bush administration's policy of boosting the stockpile at time of record oil and gasoline prices.
Oil prices have surged sixfold since 2002 as supply has struggled to keep pace with booming demand from emerging economies, leading consumer nations to call upon OPEC to ramp up production to help ease the sting of high fuel prices.
Officials from the cartel insist that speculators -- not a lack of supply -- are responsible for the latest surge in prices as investors pile into oil and other commodities as a hedge against the falling dollar and rising inflation.
Weekly U.S. inventory data on Wednesday will provide further direction to the market after an unexpected fall in distillates stocks, which include heating oil and diesel fuel, pushed prices higher last week.
U.S. crude inventories are expected to have risen for a fourth straight week, while products stocks would also rise, helped by an increase in refinery utilization, a Reuters poll of analysts found.
Investors wondered how long demand could hold up given the sharp rise in oil prices, which first hit $100 in January.
(Additional reporting by Maryelle Demongeot in Singapore and Barbara Lewis in London; Editing by David Gregorio)
