Oil surges to new highs as dealers focus on diesel

By Richard Valdmanis

NEW YORK (Reuters) - Oil prices rose 1.4 percent on Wednesday, extending further into record territory amid intensifying worries over tight world supplies of diesel fuel.

U.S. crude leapt $1.69 to settle at $123.53 a barrel, before hitting an all-time peak of $123.89. London Brent rose $2.01 to $122.32.

Crude prices have doubled in a year and risen sixfold since 2002 on rising demand from China and other developing countries, adding pressure to economies already hard hit by a housing and credit crunch.

U.S. President George W. Bush will ask the Organization of the Petroleum Exporting Countries to increase production when he visits Saudi Arabia next week, a senior White House official said, adding to a slew of recent calls from consumer nations for more oil from the cartel.

Wednesday's rally came after a U.S. government report showed a decline last week in distillate inventories -- which include diesel and heating oil -- that brought stockpiles in the world's biggest energy consumer nearly 13 percent below a year ago.

Tight power supplies in China, South Africa, Chile, Argentina and parts of the Middle East have set off a worldwide boom in demand for diesel for use in electric generators, adding to robust demand for use in Europe's passenger vehicle fleet.

There is a "bullish outlook for diesel," French bank Societe Generale said in a research note.

The report from the U.S. Energy Information Administration Wednesday morning also showed an increase in crude oil stockpiles of 5.7 million barrels and an increase in gasoline supplies of 800,000 barrels, tempering the market's gains.