June 26, 2008 / 1:24 AM / 12 years ago

Oil hits record over $140, Libya studies output cut

NEW YORK (Reuters) - Oil prices surged nearly 4 percent to a record over $140 a barrel on Thursday after Libya said it was studying possible options to cut output in response to potential U.S. actions against producer countries.

A gas flame is seen in the desert near the Khurais oilfield in Saudi Arabia, June 23, 2008. REUTERS/Ali Jarekji

U.S. crude settled up $5.09 at $139.64 a barrel, after hitting an all-time high of $140.39 earlier, eclipsing the previous record of $139.89 a barrel hit on June 16. London Brent crude settled up $5.50 at $139.83 a barrel.

After Thursday’s settlement, prices fell more than $1 to $138.61 on news that the U.S. House of Representatives directed the Commodity Futures Trading Commission to use its authority, including emergency powers, to “curb immediately” the role of excessive speculation in energy futures markets. The Senate must now take up the measure.

Earlier, the record was hit largely on the news from Libya.

“The crude oil market spiked sharply higher in early trading after Libyan National Oil Company chief Shokri Ghanem said that Libya was considering a production cut,” said Tim Evans of Citi Futures Perspective.

Ghanem, Libya’s most senior oil official, said he was studying the possibility of reducing production in response to a bill before the U.S. Congress that would empower the Justice Department to sue members of the Organization of Petroleum Exporting Countries for limiting oil supplies.

“We are studying all the options,” Ghanem told Reuters. “There are threats from the Congress and they are taking OPEC to court, extending the jurisdiction of the U.S. outsidethe U.S.”

Libya pumped about 1.71 million barrels per day (bpd) of oil in May, according to a Reuters survey, out of total OPEC output of 32.12 million bpd.

President George W. Bush has said he would veto the legislation if it were passed by Congress. The House of Representatives passed the bill in May, but the Senate has yet to schedule a vote on the measure.

Oil prices have rallied over the past six years, supported by surging demand from emerging economies like China.

U.S. crude prices stood at $70 a year ago.

Rising flows of cash into commodities from investors seeking to hedge against inflation and the weak dollar have added to gains this year.

The dollar fell broadly on Thursday after the Federal Reserve held interest rates steady on Wednesday and dashed expectations of an imminent rate hike.

ECONOMIC STRESS

Oil’s gains helped push down U.S. stocks on Thursday, with the Dow falling to its lowest level since September 2006 on recession worries.

Rising fuel costs have strained economies and spurred protests around the globe, prompting OPEC kingpin Saudi Arabia to pledge to hike output during a meeting between producer and consumer nations over the weekend.

OPEC President Chakib Khelil said in an interview Thursday that prices could reach $170 a barrel in the coming months, and he reiterated the cartel’s position that speculation — not a supply problem — was driving oil to new highs.

“I forecast prices probably between $150 and $170 during this summer. That will perhaps ease towards the end of the year,” Khelil told France 24 television, according to a text of the interview released by the station.

Oil prices fell on Wednesday after U.S. government data showed a surprise build in the crude inventories of the world’s top consumer as demand continued to drop.

Nigerian oil workers met with Chevron management and the OPEC country’s oil minister on Thursday in an effort to avert an all-out strike that could cut output.

Additional reporting by Bernie Woodall in Los Angeles, Robert Gibbons, and Gene Ramos in New York and Ikuko Kao and Jane Merriman in London; Editing by Marguerita Choy

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