Crude oil prices rose on Tuesday to a new of $127 a barrel after Iran said it is reviewing a plan to cut output and renewed concerns that refiners are not satisfying demand of distillate fuels including heating oil.
Iran's president Mahmoud Ahmadinejad said the country, which is member of the Organization of Petroleum Exporting Countries was reviewing oil output, the Fars News Agency reported on Tuesday. Ahmadinejad said that such proposal has been made and has been reviewed by expert.
Iran is planning to cut daily production by 400,000 barrels to 1 million barrels starting next month, the agency said quoting an anonymous source. Oil Minister Gholamhossein Nozari said earlier that no decision on cutting production has yet been reviewed or made.
Crude for June delivery closed at $125.80 a barrel on the New York Mercantile Exchange, up $1.57, or 1.3 percent. The June contract marked a record high of $126.98 a barrel in electronic trading; the highest since trading began in 1983.
On Monday crude oil dropped as crude imports from China fell 3.9 percent in April, the largest in 18 months for the second largest consumer in the world.
Some analysts attributed today's gains to a lack of distillate supplies. According to the International Energy Agency, inventories of distillates in developed countries slumped 6.7 percent to 477.6 million barrels in March from last year. An unexpected decline in distillate stocks including heating oil and diesel fuel send prices higher the last week.
There is increased speculation that demand of oil may curb. Earlier Tuesday, the IEA said record-high oil prices will slow global oil demand growth. The agency cut its estimate for 2008 global oil demand by about 390,000 barrels a day to 86.84 million barrels. This represents about 390,000 barrels a day less compared to what the IEA had forecasted last month. The agency projected an increase in oil demand from China and Middle East to rise by 4.9 percent.
A weekly inventories report from the U.S. Energy Department is scheduled for tomorrow at 10:30 a.m. Forecasts say crude inventories rose for a fourth straight week.
Brent crude oil futures for delivery in June rose 0.76 cents or 0.63 percent to $122.78 a barrel by 3:21 p.m. on the London ICE Futures Exchange. Prices climbed to a record of $125.90 on May 9.