Oil spikes to record high near $127

Oil surged to a record peak near $127 on Tuesday after OPEC producer Iran said it was studying a plan to cut output despite signs record-high prices are hurting consumer nations.

US crude settled up $1.57 to $125.80 a barrel, after striking a record $126.98 earlier. London Brent crude rose $1.19 to $124.10 a barrel. President Mahmoud Ahmadinejad said a proposal to reduce Iran’s crude output was being reviewed by experts, the semi-official Fars News Agency reported.

"There has been such a proposal and it is under expert review," Fars quoted Ahmadinejad as saying when asked about the possibility of the world’s No. 4 producer reducing output. Iranian Oil Minister Gholamhossein Nozari earlier said Iran was reviewing how much oil it pumps, but no decision had been taken on any changes.

"We’re in a market where anything bullish is going to be able to push the price higher," said Peter Beutel, president of Cameron Hanover. Oil prices have already surged sixfold since 2002 as supply has struggled to keep pace with booming demand from emerging economies.

Further support came from tight global supplies of distillate fuels such as diesel after a snag at the Grangemouth refinery in Scotland. European middle distillate stocks fell sharply in April, down 1.4 percent from March and 7.2 percent lower than a year ago, data from industry monitors Euroilstock showed.

Demand Revisions

Oil had closed lower on Monday after data showed a decline in oil imports by No. 2 consumer China in April, the first year-on-year drop in 18 months, raising further questions about demand growth forecasts.

The International Energy Agency on Tuesday said record-high oil prices will slow global oil demand growth this year to 1.03 million barrels per day (bpd), 230,000 bpd less than its previous forecast. Demand from emerging countries remained strong, however.

The US Senate voted to suspend deliveries to the Strategic Petroleum Reserve until crude prices fall below $75 a barrel, repudiating the Bush administration’s policy of boosting the stockpile despite high prices.

Consumer nations have called on OPEC to ramp up production to help ease the sting of high fuel prices, but officials from the cartel insist that speculators -- not a lack of supply -- are responsible for surging prices.

Investors have piled into oil and other commodities as a hedge against the falling dollar and rising inflation following a series of interest rate cuts by the US Federal Reserve.

San Francisco Federal Reserve Bank President Janet Yellen said that she would be happy if futures Markets were right in forecasting a Fed rate increase by year end, which analysts have said could weaken commodity prices.

Traders also were awaiting weekly US inventory data due on Wednesday, which are expected to show a build in US crude and distillate inventories with gasoline stocks unchanged, according to a Reuters poll of analysts.