Oil prices edge higher

OIL prices edged higher today after OPEC's president rebuffed calls for the cartel to boost output and the dollar weakened on expectations the Federal Reserve will leave interest rates unchanged.

New York’s main oil futures contract, light sweet crude for August delivery, rose 26 cents to close at $US137 per barrel.

In London, Brent North Sea crude for August climbed 55 cents to settle at $US136.46.

“OPEC has already done what OPEC can do and prices will not come down,” the cartel’s president Chakib Khelil said today as he arrived for a meeting with European Union energy officials in Brussels.

Saudi Arabia, the largest crude oil exporter in the Organisation of the Petroleum Exporting Countries, said at a weekend summit of oil consumers and producers that it was hiking daily output by more than 200,000 barrels to 9.7 million.

OPEC, which pumps about 40 per cent of the world’s crude oil, has insisted there is enough oil to meet demand.

Mr Khelil blamed high prices on the US “subprime crisis and the ensuing impact of the dollar devaluation and the influx of funds that were looking for good returns that they could not find in other investments”.

He estimated that hedge fund zeal for positions in the oil market added $US40 to crude prices.

With oil supply currently greater than demand, Mr Khelil said that the course oil prices take in the coming months depended on the dollar’s exchange rate and geopolitical tensions.

Mike Fitzpatrick, an analyst at MF Global, said that sky-high oil prices were finding support “on lingering disappointment” over the Saudi oil summit in Jeddah on Sunday, market expectations the Fed will hold rates Wednesday and new turmoil in Nigeria.

“The simple arithmetic is that demand is outstripping supply, no matter what OPEC does, or how the West chooses to defend itself. There remains a buyer for every additional barrel,” Mr Fitzpatrick said.

Sucden analyst Andrey Kryuchenkov stressed that “overall, the market remains well supported, despite Saudi Arabia’s promise to pump more oil”.

Mr Kryuchenkov said that investors were likely to shift their attention to the foreign exchange market ahead of the Fed announcement on interest rates tomorrow.

“The US central bank is expected to leave rates unchanged at two per cent which could put some pressure on the dollar and support crude prices,” he said.

On June 16, oil hit record highs of $US139.89 in New York and $US139.32 in London.

Analysts said oil prices have been underpinned by the weak dollar, which boosts demand for dollar-denominated oil for buyers using stronger currencies, and rebel attacks against oil installations in Nigeria that have dented its oil output.