updated 3/16/2004 3:41:51 PM ET 2004-03-16T20:41:51

Oil prices bubbled at lofty levels after peaking at fresh one-year highs Tuesday as consumers fretted over the economic repercussions of the rise in energy costs.

U.S. light crude settled 4 cents higher at $37.48 per barrel, near a fresh 12-month peak of $37.80 hit earlier. The gains extended a rise that began last week after terror bombings in Madrid fueled worries about further attacks that could disrupt oil supplies.

London Brent crude for May delivery settled 13 cents weaker at $32.68 per barrel.

U.S. prices have jumped 4.5 percent this week as suspicions grew that the militant al Qaeda network was linked to the Madrid bombings last Thursday that killed 201 people and wounded more than 1,400 others.

Supply concerns have gained renewed force as oil cartel OPEC, which controls half the world’s crude exports, plans to reduce supplies at a time when Chinese demand is rocketing.

Traders are also on edge over the prospects of a summer gasoline supply crunch in the United States, the world’s biggest oil consumer, where fuel inventories are running below normal levels.

A Reuters survey of 11 analysts Tuesday expected the U.S. government’s Energy Information Administration to report Wednesday that U.S. crude oil supplies rose more than 1.6 million barrels last week thanks to strong imports, while gasoline stocks fell nearly 1.4 million barrels.

Traders remain concerned that refineries could struggle to build inventories for the peak demand summer season as new environmental regulations restrict supply.

Consumer unease
Many economists argue oil prices above $30 a barrel can hold back growth and consumers worldwide are uneasy.

The head of Germany’s export industry association said Tuesday that oil prices pose a bigger risk to Germany’s economic recovery than the euro’s exchange rate, Anton Boerner, president of the BGA exporters’ association, said he expected the oil price to reach between $37 and $38 this year and that prices may even exceed $40 per barrel.

U.S. light crude prices have averaged almost $35 so far in 2004, higher than 2003’s average of $31, which was the highest annual average in more than two decades.

“It’s shocking,” said William Ramsay, deputy executive director of the International Energy Agency, which advises 26 industrialized nations on energy policy.

“There is no fundamental reason. Prices are talked up by politics, stock levels and security concerns. I don’t think even OPEC likes to see prices at these levels. It’s not in their interest,” Ramsay said in Seoul on the sidelines of an oil conference.

OPEC fears world demand will slump after April as rising temperatures following the northern winter reduce demand for heating. The group plans to cut official output quotas to 23.5 million barrels per day from April 1 from 24.5 million bpd.

It has also vowed to cut out production above the self-imposed limits, which Reuters estimated totaled more than 1.5 million bpd in February.

“What is clear is that, despite OPEC’s extremely high current output levels, there is little sign of a large surplus forming in the market just yet,” said Barclays Capital in a report.

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