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Oil prices rise to new record high levels

But red-hot prices later cooled slightly as traders reacted with relief to news of an unexpected rise in US gasoline inventories.

New York's reference contract, light sweet crude for delivery in September, rose to a new historic peak of 44.34 dollars per barrel. It later stood at 44.10 dollars, down five cents from the previous close.

London's Brent North Sea crude oil for September delivery climbed to a record 40.99 dollars a barrel, breaking through a previous best of 40.95 dollars seen in October 1990 after the Iraqi invasion of Kuwait.

In late trading September Brent was six cents higher at 40.70 dollars a barrel. "Spare capacity is at an historic all-time low level, which helps to keep the prices very strong," GNI-Man Financial trader Lee Elliott said.

Worries over terrorism and the risks of supply disruptions from Russia, Iraq and Venezuela were also unnerving traders. Opec warned on Tuesday that it could not pump any faster in the short run to keep up with surging demand. "There is clearly a very strong demand, mainly from China and the US, fuelled by very, very strong growth in those two countries," said one oil industry analyst at a European bank.

"From the supply point of view, Opec is producing at their maximum capacity at the moment, so they can't open the tap up to lower prices," he added.

Opec, which produces a third of the world's oil, agreed in June to raise its output ceiling by two million barrels per day in July and by a further 500,000 barrels from August 1 to help to cool prices.

Traders took some comfort from a survey from the US Energy Department which showed gasoline stocks rose 2.4 million barrels to 210.1 million barrels in the week ending July 30.

Crude oil stocks dropped 1.9 million barrels to 298.6 million, according to the survey.

"The build in the gasoline particularly caused quite a lot of selling in the market," said Prudential Bache broker Christopher Bellew.

"Technically the market is overbought. There's been quite a long run on the upside and we are due for a technical retracement," he added.

The price of the Opec basket of seven crude oils reached a new record high of 39.33 dollars on Tuesday, an Opec spokesman said in Vienna.

But despite record high prices, US President George W. Bush opposes tapping the emergency Strategic Petroleum Reserve (SPR) White House spokeswoman Claire Buchan said.

"The SPR is there for emergencies," Buchan told AFP.

Bush in November 2001 ordered that the strategic petroleum reserve, stored in huge underground salt caverns along the coastline of the Gulf of Mexico, be filled to its maximum capacity of 700 million barrels.

The reserve is at a record 665 million barrels and growing.

Fears about tight supplies have grown in recent weeks amid an increased threat of disruption to Russian exports because of the financial crisis at energy giant Yukos.

Prices have been further fuelled by sabotage attacks to pipelines in major producer Iraq.

Traders were also keeping a nervous watch on Venezuela ahead of an August 15 referendum there which the opposition hopes will unseat controversial President Hugo Chavez. "We saw what happened in 2002 when production went almost to zero," said the oil analyst, referring to a strike which crippled Venezuela's oil exports.