Oil prices rise again as investors bank on hopes of a recovery

Crude oil for July delivery hit $68.29 a barrel on the New York Mercantile Exchange at one point – the highest level since early November – as investors also sought protection from a weakening dollar in commodities.

The rise comes amid a climb for the pound, which hit a fresh seven-month high against the dollar at $1.64.

Sterling also rose to its highest level against the euro since February.

Oil prices have almost doubled from less than $35 a barrel in March, as investor optimism grows that the US recession could be slowing.

Surveys showing Chinese manufacturing expanded last month and hopes over the US government-backed rescue deal for General Motors (GM) have also boosted confidence.

But analysts warned the price could be heading for a fall as investors face up to the reality of weak global oil demand and a glut in US supplies, which are at near 19- year highs.

Energy consultant John Hall said: “I just find it really difficult to agree with what is happening out there, but the price is moving up and there is no fundamental reason for it.

“If we are not heading for a correction, then there is something really wrong with the market.”

Mr Hall warned of depressed demand and said any growth in Chinese output would not be able to compensate for the slowdown in the US.

Higher oil prices could even help to put the brakes on any drag on any nascent recovery, he added.

“When you look around and look at GM, why is the car industry in the US in such a mess? Because oil prices were too high,” he said.

Last week, the Opec oil producing cartel held production levels, saying weak demand was “likely to remain for some time”.

The latest estimates from the International Energy Authority’s oil market report forecasts a three per cent fall in oil demand, to 83.2 million barrels a day this year compared with last year – based on the premise that a strong economic recovery later this year “remains elusive”.