Oil prices rose a dollar to a new record near $61 (€50.16) yesterday, driven by the resilience of world energy demand in the face of high fuel costs and worries about oil policy under Iran's new hardline president.
US crude traded at a new high of $60.95 a barrel, up $1.11, before settling up 70 cents at $60.54. London Brent set a record $59.59 a barrel for a gain of $1.23 before ending up 94 cents at $59.30.
Central Bank governor John Hurley said the failure of oil to fall back from record levels held dangers for the global economy.
"I think energy prices and those indicated by futures markets do pose risks to growth, not just in the euro area but more widely, and the continuing high energy prices could also pose upward risks to inflation if second-round effects were to materialise," he said.
"The market is testing higher to see what price levels this demand can endure," said Naohiro Niimura, vice-president at the derivative products division of Japan's Mizuho Corporate Bank.
Victory in Iran's presidential election for ultra-conservative Mahmoud Ahmadinejad also helped support prices.
Mr Ahmadinejad has vowed to flush out corruption from the country's oil sector and favor domestic investors, although analysts do not expect any quick shift in production policy.
The oil price rise came as German business confidence figures from the Ifo institute rebounded after four months of consecutive falls, deflecting some of the pressure on the European Central Bank (ECB) for a cut in interest rates.
Nevertheless, economists cautioned about reading too much into the increase in Ifo's business climate index from 92.9 in May to 93.3 this month.
Andreas Rees, economist at HVB in Munich, said that while German business was benefiting from a falling euro, it was being hit by higher oil prices.
"These two developments make it difficult for a company to assess whether prospects are good or bad."
Ralph Solveen, economist at Commerzbank, added: "With the price of oil still rising rapidly, the threats to economic activity have not decreased. If global demand remains less buoyant, a weak euro will hardly produce any benefits."
The ECB will await European Commission economic sentiment indicators and eurozone purchasing managers' indices later this week before concluding its economic assessment. - (Reuters)
