The price of a barrel of oil has passed the $122 mark for the first time.

US light crude hit a fresh high of $122.73 in New York trading, while London's Brent crude has passed $120 for the first time, hitting $120.99.

Oil has been rising because of fears over possible supply disruptions in Nigeria and in northern Iraq and predictions of higher US demand.

Economists warn higher oil prices are continuing to drag on global economies already weakened by the credit crunch.

Oil has continued to hit record levels since it reached $100 a barrel for the first time in January 2008.

It has risen by 25% in the last four months and by about 400% in the last seven years.

Supply disruptions

Royal Dutch Shell's production from Nigeria is down by about 164,000 barrels a day after its pipelines suffered a series of attacks by militant groups.

Meanwhile in Northern Iraq, Turkish forces have renewed cross-border raids against Kurdish insurgents.

Optimism about the prospects for the US economy which may increase demand for oil, boosted the oil price in Asian trading.

"The bulls are in control of the market," said Victor Shum, energy analyst at Purvin & Gertz in Singapore.

"The economic report out of the US [on Monday] on the service sector seems to suggest the economic slowdown may not be as deep as initially thought," he said.

"The sentiment is that the oil pricing is likely going to stay quite strong, with a lot of volatility," Mr Shum said.

'Serious consequences'

Analysts at Goldman Sachs predicted oil could reach between $150 to $200 over the next six months to two years in a report on Monday.

If oil prices stayed at current levels of $120 or rose further to $150, this would have "serious consequences" for the strength of the economy, economic forecasters said.

Economists from the Ernst & Young Item Club said their forecasts for the recovery of the UK economy were based on oil prices below $100 a barrel.

"If it hits $200 per barrel, as one Opec minister recently predicted, then frankly, all bets may well be off," said Hetal Mehta, Item Club economist.

Securing supply

Demand for oil from the fast-expanding economies of India and China is one of the key long-term factors that has boosted the price of the commodity.

China will take further steps to secure a greater future supply of oil this week when it signs a deal with oil-producer Venezuela to build a refinery jointly in Guangdong province.

Under the deal, Venezuela will supply China with 400,000 barrels a day, five times the current amount.

"We want to co-operate with foreign firms in both the upstream and downstream business to take advantage of our respective strengths and secure steady oil supplies," said Shen Diancheng, vice-president of the largest Chinese oil and gas firm, Petrochina.

The company is also in talks with Qatar about building a refining and petrochemical complex in eastern China.

Last month, Petrochina signed a 25-year pact with Qatar to secure supply of liquified natural gas from the Gulf nation.

(BBC)

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