Oil prices surge to record high of $112

Oil surged nearly $4 to a record over $112 a barrel today after a US government report showed a sharp drop in US inventories …

Oil surged nearly $4 to a record over $112 a barrel today after a US government report showed a sharp drop in US inventories ahead of the summer driving season.

US crude rose $3.71 to $112.21 a barrel by 1 p.m. EDT, breaking the previous record high of $111.80 hit March 17. London Brent jumped $3.02 to $109.36 a barrel.

US crude stockpiles fell 3.2 million barrels last week as imports declined, countering analyst expectations for a build, while gasoline and distillate inventories also tumbled, the US Energy Information Administration reported.

Concern about diesel supplies amid strong demand in Europe and Asia also supported crude this week, with London gas oil hitting an all-time high of $1,026.75 a tonne today.

Further strength came from weakness in the dollar, which fell against the euro and the yen on views the US Federal Reserve could cut interest rates by a 50 basis points this month amid worries of a possibly severe US economic downturn.

The weak dollar has helped boost prices for commodities denominated in the greenback by boosting non-US spending power and by luring investors seeking an inflation hedge.

High oil prices and the weakening US economy have stirred demand worries in the world's largest energy consumer. The US government yesterday forecast summer driving use would fall for the first time since 1991.

Despite calls from consuming nations for OPEC to raise oil production to help tamp record prices, cartel members insist markets remain well supplied.