NEW YORK – Oil prices surged nearly $2 and briefly hit a record at $60 a barrel on Thursday amid a flurry of buying as dealers worried that continued strong demand growth would strain global production capacity.
U.S. crude futures on the New York Mercantile Exchange (search) settled up 1.33 at $59.42 after touching $60 a barrel, bringing gains this year to nearly 40 percent. London Brent crude on the International Petroleum Exchange rose $1.80 to $58.38.
"All it tells me is that the trend is still up," said Tom Bentz, a broker at BNP Paribas Commodity Futures in New York.
It was not the first time the August crude contract traded above $60 a barrel — that happened back in April and again on Monday. But it is significant because August is now the front month contract, meaning that it is now the contract that will expire next and so is the most actively traded.
"It's mostly due to speculation," said Mike Fitzpatrick, a broker at Fimat USA in New York. "I don't see the fundamental support for these prices."
On Monday, July futures settled at $59.37 a barrel, a record close on the New York Mercantile Exchange, where oil futures have been traded since 1983. The July contract expired Tuesday. U.S. government data on Wednesday showed ballooning energy costs had yet to dent demand, underscoring concerns about tight spare oil production and refining capacity.
Distillate demand is roughly 7 percent higher than a year ago, adding to concerns that refiners will struggle to build stockpiles ahead of peak demand in the fourth quarter, while gasoline demand is running 2.5 percent higher.
"What's really driving the market are longer term concerns," said Helen Henton, head of commodities research at Standard Chartered. "Refinery capacity issues are enough to keep the price high, although maybe not to put it above $60 for long."
As refiners worked close to full-throttle to try to meet demand, overall crude stocks eased further from six-year highs touched last month, but were still 8 percent higher than a year ago, the U.S. data showed.
Signs that U.S. consumption is holding firm have encouraged many investors to keep betting on gains, though analysts say investment flows are becoming more cautious as the world tries to gauge the impact of record high prices.
The Organization of the Petroleum Exporting Countries (search) is pumping virtually flat out, but has said repeatedly that it cannot solve the problem of a global lack of refining capacity.
Reuters and the Associated Press contributed to this report.