Crude Oil Hits $47 as Rebels Hit Iraqi Wells

Oil prices surged over $47 a barrel on Wednesday on evidence that energy costs are not substantially slowing the economic growth that fuels oil demand and fresh threats by rebel militia against Iraqi oil facilities.

U.S. light crude rose 42 cents to a record $47.17 a barrel on the New York Mercantile Exchange (search) after a 93-cent jump on Tuesday. London Brent rose 21 cents to $43.20 a barrel. U.S. oil has set all-time highs in all but one of the last 14 trading sessions and is up $10 a barrel, 27 percent, since the end of June.

In real terms, adjusted for inflation, oil prices are still well below 1980's peak of $80 a barrel, following the Iranian revolution. But average U.S. prices this year so far of $38 are approaching those of 1974, the first oil shock, when crude averaged an inflation-adjusted $43 during the Arab oil embargo.

German Chancellor Gerhard Schroeder said that while high prices were a concern, global growth remained strong.

"We don't currently see any negative impact from the oil price and we still have very robust global growth," Schroeder told a press conference in Berlin.

The United States on Tuesday said consumer prices fell in July for the first time in eight months, indicating underlying inflation pressures are largely under control in the world's biggest oil importer.

"The economy overall is unaffected by oil prices at this high level. That suggests retail oil demand will continue to be healthy," said Tony Nunan, manager at Mitsubishi Corp. 's international petroleum business.

China recorded 21 percent oil demand growth in the first half of the year and crude imports by the world's second-largest oil consumer are up 40 percent year-on-year to the end of July, according to recent data. That indicates Beijing's bid to slow economic growth has yet to make much impact on energy demand.

U.S. oil demand so far this year is up 3.5 percent, preventing inventory builds as rising consumption soaks up extra imports from OPEC (search) suppliers like Saudi Arabia.

"It's all about demand and stocks," said Leo Drollas, chief economist at London's Center for Global Energy Studies. "As long as there are only 18.5 days worth of U.S. crude stock cover, prices will hold near $45 because any problem in supply anywhere in the world feeds directly into the futures price."

Leading OPEC power Saudi Arabia said this week it is pumping as much as possible in a bid to lower prices to $25-$30 a barrel but fears are that global production capacity is close to its limit.

"Any significant capacity is seen as unreliable -- Iraq, Russia and Venezuela for instance. Ongoing violence in Iraq is reinforcing the mood," said David Thurtell, commodities strategies at Commonwealth Bank of Australia.

In Iraq, a group claiming links to rebel cleric Moqtada al-Sadr (search) said it was responsible for setting an oil well on fire and vowed to attack the country's main southern pipeline if U.S. forces besieging al-Sadr in Najaf do not leave the holy city.

"We set ablaze an oil well in Amara. This is a simple warning to the government of (Prime Minister Iyad) Allawi and to occupation forces, that we will bomb the main south oil export line if they do not leave Najaf within 48 hours and end the siege," said the Internet statement dated August 16 and signed by The Secret Action Group of The Imam Mehdi Army.

The southern pipeline has been closed for the most part since a sabotage attack on August 9, restricting export flows to about one million barrels daily, half normal supply rates.

Some Asian countries, increasingly worried about oil prices, are planning measures to conserve energy or to cushion its impact.

Thailand is drafting plans to encourage shops and cinemas to close early, while South Korea may consider cutting oil tax rates at the end of August, in a bid to shield the economy from red-hot oil prices.