US oil prices have shot up to a record high, about $128 a barrel, despite an announcement of increased supply from Saudi Arabia.

The US energy department on Friday also said it would halt shipments to government stockpiles - potentially increasing supply - for the second half of the year after congress passed a bill calling for the suspension.

Oil prices have effectively doubled since last year and are six times higher than in 2002.

The rise has been attributed to rising demand from China and other developing nations.

The Organisation of the Petroleum Exporting Countries (Opec) has largely rejected recent calls for more supply.

But Saudi Arabia, Opec's largest producer, announced on Friday that it would produce 300,000 more barrels per day - about a 3.3 per cent output increase - as George Bush, the US president, visited Riyadh.

On the other hand, Opec's smallest producer, Ecuador, said on Friday that members should consider raising output to check the oil rally because high prices are hurting the poor.

Rafael Correa, president of Ecuador, said: "I think Opec has to deal with this issue, because this is hitting all the poorest countries that are oil importers."

Diesel, meanwhile, has taken centre-stage in the world energy crunch as tight power supplies in China, South Africa, Chile, Argentina and parts of the Middle East trigger a boom in demand to power electric generators.

Chinese demand for imported diesel is expected to rise even further in June after this week's deadly earthquake disrupted gas supplies to major cities and as companies build stockpiles ahead of the summer Olympics.

Analysts say weakness in the US dollar further spurred Friday's oil gains.

Goldman Sachs, the most active investment bank in energy markets, however, predicted oil prices will average $141 a barrel in the second half of the year, due to shallow inventories.





Source: Agencies