US August crude oil futures traded as high as $60.47 a barrel on Monday, up 63 cents, extending a rally that has added 12% to prices in two weeks and 39% since January.

Oil was up 61 cents at $60.45 a barrel by 0216 GMT, surpassing the $60 mark for the first time since it began trading on the New York Mercantile Exchange in 1983. London Brent crude was up 59 cents at $58.95 a barrel, also a new record.

"It really has been a momentum-driven push to $60 over the past week, we've seen the funds really pile in hard in an effort to push it over (that level)," Daniel Hynes, resource analyst at ANZ Institutional Banking, said.

Prices have soared as investors bet refiners and producers would struggle to meet peak winter demand in the world's biggest energy consumer. Speculators boosted their net long positions in US crude to nearly 20,000 lots last week.

High prices impact

While high prices are eroding strength from a world economy, already vulnerable to upsets, the overall picture remains solid, central bankers meeting in Switzerland said at the weekend.

"The market is testing higher to see what price levels this demand can endure"

Naohiro Niimura,
Mizuho Corporate Bank

This has encouraged speculators to keep testing consumers' ability to absorb higher costs, with some analysts saying only a significant pullback in demand - due to conservation, fuel switching or an economic slowdown -will tame prices.

"The market is testing higher to see what price levels this demand can endure," said Naohiro Niimura, vice-president at the derivative products division of Mizuho Corporate Bank.

Crude oil contracts for delivery through next August are now all trading above $60 a barrel as dealers see tight market conditions running for at least another year, especially for distillate products such as heating oil and diesel.

Heating oil up

Heating oil traded up 1.91 cents or 1.2% at $1.6695 a gallon, below their 4 April  front-month record of $1.6950 a gallon, but still unseasonably strong.

Petrol, which typically leads the market during the summer when US consumption surges to account for more than 10% of world oil demand, was up 1.58 cents at $1.6715.

Over the past four weeks, demand for distillates in the US has risen nearly 7% from last year while petrol consumption is up 2.5%.

With prices undeterred by the Organisation of the Petroleum Exporting Countries' largely symbolic output hike earlier this month, producers have begun consulting on another increase, Opec President Sheikh Ahmad al-Fahd al-Sabah said on Saturday.

Iran poll fallout

"We started yesterday, Friday," Sheikh Ahmad, who is also Kuwait's oil minister, told journalists in parliament.

"I spoke with Attiyah and Naimi," he added, referring to the oil ministers of Qatar and top producer Saudi Arabia.

An ultra-conservative now leads
the fourth biggest oil producer

But a new increase of 500,000 barrels per day (bpd) - an amount agreed by ministers in Vienna - may do little to soothe oil traders who say it's a shortage of refining capacity, not crude oil, that's driving prices higher.

Oil analysts have also said the presidential election in OPEC member Iran - won at the weekend by Mahmoud Ahmadinejad - could have implications for the oil market as it heightens uncertainty in the world's fourth-largest producer.

Ahmadinejad said after his victory over moderate Akbar Hashemi Rafsanjani that he would flush out corruption from the country's oil sector and favour domestic investors, although analysts do not expect a big shift in production policy.