US oil prices roared to fresh one-year highs above $38 a barrel on Wednesday as a drop in already low gasoline inventories sharpened the threat of a supply crunch that could hurt economic growth.
US light crude futures rose 72 cents to $38.20 a barrel by 1615 GMT, the highest level since just before the invasion of Iraq last year. London Brent crude was up 64 cents at $33.32 a barrel.
Prices jumped after the US government's Energy Information Administration's latest snapshot on the world's biggest oil market showed a further 800,000 barrels decline in gasoline stocks to 199.6 million barrels.
US gasoline supplies are running five percent below the five-year average, sparking concerns refineries will struggle to build supplies in time for the summer holiday driving demand.
"What we're seeing now is that some funds had moved to the side making sure there wasn't a bearish surprise and now they are rotating back into the long side," said Jim Ritterbusch, president of Ritterbusch and Associates.
US light crude prices have averaged almost $35 a barrel so far in 2004, well above 2003's average price of $31, which was the highest in more than two decades.
Plans by Opec to cut official production quotas by four percent in April and rocketing Chinese demand have combined to push prices to levels which consuming countries fear could hurt economic growth.
The head of Germany's export industry association said on Tuesday that oil prices pose a bigger risk to Germany's economic recovery than the euro's exchange rate.
Opec ministers agreed last month to eliminate 1.5 million bpd of supply above existing quotas and cut official production limits in April by one million bpd to 23.5 million bpd.
While most Opec ministers have said they intended to implement the April cuts, there have been few signs of cutbacks in March.
Tanker tracking consultant Petrologistics has told clients it expected the 10 Opec members with quotas to produce 25.63 million barrels a day in March, down just 150,000 bpd from 25.78 million bpd in February.