Heat is on

London, May 20 (Reuters): Oil rose to a new record of above $129 a barrel today, spurred by strength in refined oil products, led by diesel, and a weak dollar.

The US light crude’s June contract, due to expire later today, rose to an all-time high of $129.31 a barrel and by 1324 GMT was trading at $128.90.

London Brent crude was $2.05 cents up at $127.11.

IntercontinentalExchange (ICE) gas oil futures rallied more than 2.5 per cent, reflecting the market tightness in diesel caused by a global demand boom led by China, West Asia, South Africa and South America for use in generators to produce power.

“Slackening US demand is being offset by a brisk offtake in the Asian countries, and to a lesser extent in Europe, where the stronger euro is cushioning the price increases,” said Edward Meir at MF Global.

“All this suggests that the overall crude picture remains very much unchanged, leaving the market free to push higher on the back of receptive fund money,” he added.

The dollar extended losses against the euro and the yen after economic data showed a smaller-than-expected rise in US producer prices.

Market participants said fears of supply disruptions in Nigeria and Iran, along with comments from the Organization of the Petroleum Exporting Countries this week suggesting a reluctance to raise output at its next meeting in September were keeping the oil market tense.

China, the world’s second-biggest energy consumer, released 8,312 tonnes of refined fuel from its strategic reserves to help relief efforts in its earthquake-hit Sichuan and Gansu provinces.