OIL prices soared to record levels yesterday as nervous traders ignored pledges of additional supplies from Saudi Arabia and instead worked feverishly to calculate the impact of Hurricane Katrina.

The price of a barrel of US light crude touched $70.85 a barrel, five cents higher than Monday’s peak, while Brent in London jumped $3.55 to $68.42 when trading resumed after Bank Holiday Monday. Gas prices in the United States also rose sharply.

The record prices prompted governments in France and Belgium to flag populist measures to protect consumers.

However, the International Energy Agency (IEA), a leading forecaster, and analysts advised against government intervention, saying that the $70 price could provide the much-needed jolt that would force consumers to reduce their oil consumption.

The French Government was in disarray yesterday, with ministers squabbling over a proposal to cut the national speed limit to reduce fuel consumption. Dominique Perben, the Transport Minister, had called for a 115kph (71mph) limit on motorways, down from 130kph at present, saying that it would save motorists €7 on a 500km journey and also reduce the road death rate. His call sparked fierce criticism from within the governing centre-right Union for a Popular Movement. A spokesman for the party said that the measure was “inappropriate”.

In Belgium, Didier Reynders, the Finance Minister, proposed a €75 government cheque for every household to soften the blow of expensive fuel.

Claude Mandil, the IEA’s Executive Director, said that a much-needed change in consumer habits, required to halt the oil-price run, would not happen if governments intervened by lowering taxes on the price of fuel. He said: “It’s not because I want people to be hurt, it’s just because I think that market signals are useful.”

Economists expect the European Central Bank to increase its 2005 and 2006 inflation forecasts this week to take into account the rapidly rising oil price, although economic growth projections are likely to remain unchanged.

Yesterday’s new oil price record came despite promises from Saudi Arabia, Opec’s biggest crude oil producer, to bring an additional 1.5 million barrels of oil to the market if needed. The United States Government also confirmed that it would consider dipping into its strategic reserves, depending on the severity of the damage inflicted by the storm.

Nervous traders, however, maintained their bearish outlook on the scale of the damage caused by Hurricane Katrina, which forced widespread shutdowns of production and refining facilities in the Gulf area. At the hurricane’s peak, eight oil refineries in southeastern Louisiana were closed, disabling almost 10 per cent of America’s refining capacity. About 1.4 million barrels a day, or a quarter of American total crude oil production, was affected. Analysts said that it would take at least a week to assess the extent of damage caused by Katrina.

Traders also gave warning that the North American hurricane season was still two weeks from its official start, suggesting that Katrina may just be a prelude for what is to come.

MARS SIGHTING

Shell reported aerial sightings of damage to Mars, one of its largest Gulf of Mexico production platforms, yesterday. However, it was unable to give details of its extent. Two drilling rigs chartered by the oil company were adrift.

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