Oil Prices Hit $40, First Time Since 1990

NEW YORK/LONDON (Reuters) - Oil prices hit $40 a barrel on Friday on concerns over security in the Middle East and tight U.S. gasoline supplies, underlining concerns that world economic growth may be reined in by rising energy costs.

U.S. light crude CLc1> touched $40 for the first time since October 1990, shortly after Iraq's invasion of Kuwait in the crisis that led to the Gulf War. It later eased to settle at $39.93, 56 cents higher on the day. London Brent LCLc1> peaked at $37.18 and was up 47 cents to end at $37.00 a barrel.

Oil analysts say prices are not likely to ease much any time soon.

"Forty-dollar oil might be here for a while," said Bill O'Grady, analyst at A.G. Edwards. "As long as there is the possibility of a terrorist attack against Saudi oil facilities, oil will have its fear-premium."

In the United States, the Bush administration is concerned about the impact of high prices at the pump in an election year and is calling on the Organization of the Petroleum Exporting Countries to calm prices by increasing output. Treasury Secretary John Snow said the oil spike is "not helpful" for the economy.

"Oil is unhelpful to both growth and inflation and this would reinforce the view that the world economy is set to cool last this year," said HSBC global economist Gwynn Hacche.

Accounting for about 45 percent of world gasoline consumption, the United States has seen retail prices hit record highs this year with demand bolstered by the growing numbers of low-mileage-per-gallon sports utility vehicles on America's highways. U.S. gasoline futures on Friday set a record $1.335 a gallon.

OPEC (News - Websites) blames a shortage of U.S. refining capacity and heavy betting by speculative investment funds on oil futures for price gains of 22 percent since the turn of the year.

"The reasons that are affecting the world oil market are really beyond OPEC's control," OPEC President Purnomo Yusgiantoro said on Friday. "The gasoline markets in the U.S. are really tight, and secondly, there is speculation," Purnomo said on CNBC television. "It is very difficult to control speculation."

Analysts say leading OPEC producer Saudi Arabia no longer has the incentive to cushion U.S. oil consumers by restraining the cartel's price hawks.

"The political message coming from Saudi Arabia over the last three years has made it clear that the days when the Kingdom was willing to blindly accommodate U.S. interests are gone," Washington-based consultants PFC Energy said.

OPEC meets on June 3 to decide whether or not to ease output restrictions but it is already pumping well in advance of official production limits. OPEC ministers will also get the chance to discuss policy options at a forum that gathers producer and consumer nations in Amsterdam on May 22-24.

Last weekend's shootings at a Saudi Arabian chemicals plant and attempts a week earlier to bomb Iraq's Basra oil export terminal have sharpened fears of a bigger attack on oil facilities in the Middle East, which pumps about a third of the world's crude.

"All you need is one person with a block of explosive in their lunchbox in a Saudi oil facility and we'd be in uncharted territory," said Adam Seminski of Deutsche Bank in London.