Crude oil tops $81 in ongoing record rally

Oil surged to more than $82 a barrel Tuesday, the fifth record in five trading days, as a Federal Reserve decision to slash interest rates heightened concerns of a winter supply squeeze in the U.S., the world’s top energy consumer.

The record rally in oil prices could lead the Organization of the Petroleum Exporting Countries to consider another hike in production just a week after the cartel agreed to boost output by 500,000 barrels a day to soothe consumer fears of a crunch.

“If the high price lasts, say, more than 15 to 20 days, there would at least be consultations between ministers,” an OPEC source told Reuters.

U.S. crude surged $1.81 to a record $82.38 a barrel in electronic trading after rising 94 cents to $81.51 in the regular session in New York. London Brent crude climbed 61 cents to $77.59.

The rally picked up steam after the Federal Reserve agreed to cut benchmark interest rates by half a point -- more than some investors had expected -- raising expectations that the economy would weather the U.S. credit crisis without slipping into recession.

“Any thoughts of macroeconomic weakness eating into energy demand now appear to be obviated by the Fed’s move,” said Mike Fitzpatrick, vice president at MF Global.

Hurricane and other supply risks, shrinking U.S. fuel inventories and fund flows into energy from poorly performing equity markets have fueled a rally of more than 30% in oil prices this year.

Experts are concerned that strong demand and lagging production could cause a winter supply squeeze.

“The winter season will look remarkably tight,” said Harry Tchilinguirian, senior oil market analyst at BNP Paribas. “The OPEC increase will fall short of the needs of the market come wintertime.”

U.S. crude oil supplies are running at their lowest level in eight months and while inventories of gasoline are at their lowest since Hurricane Katrina knocked out several oil refineries on the U.S. Gulf coast in 2005.

Though crude prices have quadrupled since 2002, when adjusted for inflation the price is below the $90 peaks of the Iranian revolution in 1979.

Goldman Sachs on Monday forecast that U.S. oil prices would surge to $85 a barrel by the end of the year, up $13 from its previous forecast.

The investment firm also said crude could climb as high as $90 because of tight supplies.

U.S. oil supplies probably dropped again last week for the fourth straight week as imports shrank, said industry analysts polled by Reuters ahead of Wednesday’s government data.