U.S. oil prices surged to a new six-week high on Friday as a falling dollar and the vulnerability of stretched global supplies spurred a new wave of speculative fund buying, traders said.

U.S. light crude (search) jumped 73 cents to $41.50 a barrel, topping this week's earlier high and nearing June's $42.45 peak, a record for the contract's 21-year history.

European benchmark Brent was up 77 cents at $38.25 a barrel, having climbed more than $1 at one point, buoyed also by an exceptionally strong cash crude market in the North Sea.

The market rallied sharply in the afternoon, following news of a muted rise in U.S. inflation and a below-forecast report on consumer inflation that sent the dollar down to four-month lows versus the euro.

That drop appeared to trigger a rush of fund buying onto the energy complex, as investors looked to oil to provide high returns in a time of weakness for fixed-income and foreign exchange markets, analysts say.

Further weakness in the dollar is also like to prompt OPEC (search) to maintain oil prices at higher levels to compensate for reduced purchasing power of the currency for global oil trade.

Oil prices have surged 16 percent in the last three weeks, kept on edge by disruptions to oil supply in Iraq, Norway and Nigeria at a time when the world's spare capacity is at its lowest in more than 10 years.

Iraqi exports in the first half of this month came to only 1.4 million barrels per day (bpd), about 400,000 bpd below capacity, as sporadic pipeline sabotage and technical problems hit flows, shipping sources said.

Price gains were spurred this week by an unexpected decline in U.S. crude and gasoline inventories, plus worries that heating oil supplies are not being built-up quickly enough ahead of the winter.

The U.S. oil data added to fears over supply disruptions at a time when output capacity was being stretched by rapidly growing demand -- estimated to be expanding at 2.5 million barrels per day (bpd) this year, its fastest clip in 24 years, according to the International Energy Agency (IEA).

The Organization of the Petroleum Exporting Countries is proceeding with its planned output ceiling hike of 500,000 bpd from August 1 in an effort to cool prices, but it looks unlikely to mean more crude.

The group, which controls around half the world's oil exports, is already pumping nearly two million bpd over its new 26 million bpd August quota, very near its maximum capacity.

With little to discuss, the cartel canceled next week's planned ministerial meeting. It will next meet September 15.

Despite hefty production, U.S. crude oil inventories fell last week, an indication that demand may be keeping pace with the higher rate of supply.

"If this demand persists then inventories of crude oil and products will need to build to even higher levels than usual before the peak winter demand season," said Barclays Capital in a report.

"At present there is little prospect of this occurring and the chances of a supply crunch developing by Q4 are rising."

Distillate supplies in the United States, where the Northeast region is a major winter-time consumer of heating oil, have emerged as an early driver for the energy complex as dealers fretted over the pace of pre-winter inventory building.

Heating oil futures reached a year-and-a-half high of $1.1250 a gallon on Friday, the strongest on record for July, when gasoline is typically the market's strongest product. By the afternoon, it was trading up 1.64 cents at $1.1150.

Seeking to avoid panic buying, the Energy Information Administration (search) said on Thursday there was plenty of time to boost heating oil inventories before the winter heating season arrives, so traders should not bid up fuel prices.

This week's EIA data reported a significant build up of 2.7 million barrels in middle distillate inventories for the week ended July 9, putting them three percent above this time last year.