Oil hit a record $74 a barrel Wednesday on fears Iran's intensifying dispute with the West may hit oil supplies and after US gasoline stocks dropped. London's Brent crude settled $1.22 higher at $73.73 a barrel after peaking at a record $74.
US gasoline stocks slumped more than 5 million barrels last week, government data released Wednesday showed. It was a larger fall than analysts polled by Reuters expected, and supplies are now nearly 5 percent below last year's level.
"The EIA (inventory) data are bullish in light of expectations," said Kyle Cooper, analyst at IAF Advisors in Houston. "There is nothing in this report that can put a damper on the current rally."
Gasoline prices have soared faster than crude since the start of April as inventories dwindle, while refiners run down stocks ahead of changes to more environmentally-friendly fuels in May.
Refinery maintenance has also eaten into stocks.
Brent has hit fresh records in each of the last seven sessions as the loss of a quarter of Nigerian oil supply has tightened European markets more than the United States, where crude stocks are at their highest level for nearly eight years.
US May crude oil futures, which expire Thursday, settled 82 cents higher at $72.17 a barrel, the first time US futures settled above $72. The soon-to-be front month June contract settled $1.03 higher at $74.12.
Tensions over Iran have fuelled a $13 rally on Brent so far this year.
"It's like the Cuban Missile Crisis, we are just waiting for someone to blink," said Michael Coleman, managing director of Singapore-based hedge fund Aisling Analytics.
Tuesday, the United States failed to secure international support for targeted sanctions against Iran and President George W. Bush refused to rule out nuclear strikes if diplomacy failed to curb the Islamic Republic's atomic program.
"All options are on the table. We want to solve this issue diplomatically and we're working hard to do so," Bush said.
The United States, which already enforces its own sweeping sanctions on Iran, wants the Security Council to be ready for strong diplomatic action.
The price of oil has trebled since the start of 2002 and is nearing the inflation-adjusted peaks above $80 a barrel reached in the early 1980s, just after the Iranian Revolution.
The high prices have sounded alarm bells in consuming nations fearful of an economic hit.
The International Monetary Fund said Wednesday the impact of higher oil prices on the global economy was a growing concern. The IMF said in its semi-annual World Economic Outlook that it was worried the full effects of the surge in energy prices had yet to be felt.
It called on US officials to consider higher gasoline taxes to curb oil consumption in the world's largest energy consumer. The US burns a quarter of the world's oil, but raising taxes is political anathema in Washington.