No Stopping Oil Prices

Updated from 12:54 p.m.

Saudi Arabia's commitment to increase production was pushed aside by immediate supply pressures Monday as traders erased early losses and pushed crude oil prices above $41 a barrel to a record high in New York.

The benchmark U.S. crude closed up $1.79, or 4.3%, to $41.72, topping the previous record high of $41.55 on May 17 on the New York Mercantile Exchange. Gasoline prices closed up 4.1 cents, or 2.9%, to $1.458 a gallon, another NYMEX record.

Analysts said higher U.S. demand compounds existing world demand, stretching the market and making it vulnerable to short-term disruptions. That is exactly what happened Monday. News of reduced production because of a pipeline bombing in Iraq, a breakdown on Shell Oil's U.S. Gulf Mars drilling platform in the Gulf of Mexico, and a scheduled maintenance shutdown in Kuwait turned into a price spike as the market also reacted to the effect of a weekend fire at a Renton, Wash., gasoline pipeline.

Phil Flynn, chief trader at Alaron Trading in Chicago, said the disruptions showed how stretched supplies are, and how vulnerable the market remains despite the Saudi plan to make more oil available. That won't happen for about 40 days, he said.

"This shows how delicate the balance is between supply and demand," he said. This is the problem you get when inventories run so low -- you have nothing to fall back on and these little stories make these major moves in the market."

The Saudi plan, unveiled at a weekend meeting in Amsterdam between the Organization of Petroleum Exporting Countries and oil-consuming nations though first announced last Friday, would increase the kingdom's daily production to 9 million barrels a day, up from its current output of 8.3 million barrels.