Related: World oil prices hit record 78 dollars

    NEW YORK, July 14 (Xinhua) -- World oil prices hit a record 78 U.S. dollars Friday amid concerns over the volatile situation in the Middle East.

    New York's main contract, light sweet crude for delivery in August, rose by 33 cents to close at 77.03 dollars a barrel, the highest closing price since 1982, after hitting intraday 78.40 dollars in overnight electronic trading.

    In London, Brent North Sea crude for August delivery surged by 58 cents to close with a record high of 77.27 dollars a barrel.

    The soaring oil prices, which reached record highs for three successive days this week, were expected to continue to climb if the crises in the Middle East, Iran, and Nigeria escalate further, energy analysts forecasted.

    The deterioration of the dangerous situation along the Lebanese-Israeli border area has sparked traders' concerns over the state of the world oil supply, as the Middle East covers nearly a third of the world's oil production, more than two-thirds of the global crude exports and almost two-thirds of the world's untapped reserves.

    Israel imposed an air and sea blockade on Lebanon for a second day on Friday and pounded Hezbollah chief Hassan Nasrallah's house and the Hezbollah headquarters near the capital Beirut. In return, Hezbollah militia bombarded an Israeli navy ship off Beirut Friday evening.

    The price of oil has continued to move upward since the start of 2002, when it stood at 20 dollars a barrel, fuelled at one time or another by strong demand from the top consumer the United States, increasing demand from the worlds' fast-growing economies, a shortage of refineries to turn crude into fuel, and worries oversupplies from Iran and Nigeria.

    Traders are still concerned about the possibility that Iran's oil exports would halt if the United Nations imposed international sanctions on Teheran for its nuclear activities.

    Iran is OPEC's No. 2 producer following Saudi Arabia, pumping 4 million barrels of crude oil and exporting 2.4 million barrels per day. If the world market loses Iran's oil, crude futures could spike to 80 to 85 dollars a barrel, said a report issued by Fimat Group.

    Nigeria is Africa's leading oil producer, with daily exports of 2.5 million barrels. About one-fourth of Nigeria's daily output, however, is still shut after a series of militant attacks.

    There are also concerns over the risks hurricanes pose to U.S. oil production. The six-month Atlantic hurricane season, which usually starts in June and ends in November, could possibly witness heavy damage by rampant tropical cyclones, although it is unlikely to reach the extremes of last year, when 28 tropical storms, 15 of which strengthened into hurricanes, rampaged across America's southern area, according to the U.S. National Weather Service.

    Hurricanes Rita and Katrina in 2005 destroyed the oil and gas production platforms and rigs concentrated in Gulf of Mexico and led to all-time highs in crude futures market.

    Surging fuel prices fail to constrain the demand for oil. The global average daily demand in 2006 has reached 84.8 million barrels, a 1.2-percent increase on the previous year, according to the Paris-based International Energy Agency (IEA).

    The demand is expected to further increase by 1.8 percent to 86.4 million barrels per day in 2007. During the five-year period between 2007 and 2011, it is set to increase by 2.0 percent annually to reach 93.7 million barrels per day in 2011, the energy watchdog forecast.

    Consumption in the United States, which accounts for more than 40 percent of the world's gasoline, is seen by investors and analysts as a bellwether for oil demand and price direction.

    The U.S. Energy Department reported Wednesday that U.S. gasoline demand increased by 1.7 percent from a year earlier, to 9.6 million barrels a day over the four weeks ended July 7, shrugging off the soaring price.

    U.S. crude oil reserves fell by 6 million barrels to 335.3 million last week, compared with a forecast drop of just 1.3 million barrels. Gasoline reserves showed a larger-than-forecast fall of 400,000 barrels to 212.7 million and refineries operated at 90.5 percent capacity, down from 93.1 percent in the previous week.

    The big drop in gasoline supplies raised concerns about potential shortages in the country's summer driving season, when demand for gasoline peaks in the world's biggest energy-consuming nation.

    A lack of spare capacity has been one of the key drivers of rising prices in the last 12 months, with the current spare capacity at just a "razor-thin level" 2.0 million barrels in OPEC countries.

    Spare capacity acts as a safety cushion by enabling OPEC to increase production in the event of disruption to supplies from an oil producing country.

    Geopolitical factors, the hurricane season and worries about U.S. stocks of gasoline might over-ride considerations of supply and demand, the IEA said in a report issued on Wednesday.

    Energy analysts say that oil prices are likely to remain high over the next few months amid fears of instability in some regions.

    The surge in oil prices dampened the financial markets, with U.S. stocks retreating for a third straight day on Friday. For the last three days, the Dow has lost 3.5 percent, and the Nasdaq has plummeted 4.3 percent, the worst three-session decline since April 2005. For the week, the Dow fell 3.2 percent, the S&P 500 finished down 2.3 percent, and the Nasdaq dropped 4.4 percent, to 2,037.35,a 14-month low.

    The flying of oil prices has raised concerns on Wall Street as it can hurt consumer spending and corporate profits and eventually spawn inflation and economic recession. Enditem