Oil rose past $127 a barrel on Monday after Opec's president insisted the producer group would not increase output at its next meeting in September. The US light crude contract for June delivery, which expires on Tuesday, settled up 76 cents at $127.05 a barrel, near the record peak $127.82 reached on Friday. London Brent crude gained 7 cents to settle at $125.06 a barrel.
"(The market) is still in bull mode technically, leading to additional upside follow-through," said Tom Bentz, analyst at BNP Paribas Commodity Futures Inc.
Crude's recent highs capped a commodities rally that has sent oil prices up six-fold since 2002 on surging demand from emerging economies, prompting consumer nations struggling with rising fuel costs to ask Opec to increase output.
Opec President Chakib Khelil on Monday reiterated recent comments from the cartel that despite record prices, oil markets were well supplied, however, and blamed high prices on speculation, a weak dollar and geopolitical problems.
"As for Opec, indications shows that there is no shortage (of supply)," Khelil he said, adding the group would not meet before its next scheduled gathering in September and that output would not likely be increased then.
The gains came despite comments from Saudi Oil Minister Ali al-Naimi on Friday that the world's top exporter had boosted oil output by 300,000 barrels per day to meet demand and compensate for other producers' lower output. "All in all, there is little indication that we are on the verge of a major price breakdown," said Edward Meir, analyst at broker MF Global.
US President George W. Bush said on Saturday he was pleased with the Saudi increase, but added was not enough to solve problems in the United States, which has been stung by the global credit crunch and high energy costs.
On Monday, the Saudi state news agency quoted Naimi as saying that the current level of oil output was fulfilling market demand.
Other Opec ministers agreed. "There is more oil in the market than consumers want," said Iraqi oil minister Hussain al-Shahristani, adding the Opec nation planned to boost total oil exports to 2.3 million barrels per day from 2.0 million bpd by the end of the year.
Diesel has taken centre stage in the world energy crunch as tight power supplies in China, South Africa, South America and parts of the Middle East triggered a boom in demand for middle distillates for electric generators.
Chinese demand for imported diesel is expected to rise even further in June after last week's earthquake disrupted gas supplies to major cities and as companies built stockpiles ahead of the summer Olympics.
Investment bank Lehman Brothers warned that record-breaking commodities prices that were drawing in hundreds of billions of dollars in new investments threaten to create an asset bubble.