New fears on long-term oil supplies drive prices higher

Traders at the New York Mercantile Exchange on Wednesday, when oil hit a high of $133.82 a barrel. It broke that record later during Asian trading. (Shannon Stapleton/Reuters)

By Graham Bowley and David Jolly

Worries that world oil demand will outstrip global supplies intensified on Thursday, sending ripples through the global economy as oil prices leaped above $135, a new record high.

The price spike occurred overnight, and by Thursday morning oil had fallen back slightly to $132.87, down 30 cents from its close on Wednesday.

But the leap capped a rally that has seen oil rise nearly $5 a barrel in two days, underscoring the dire implications of the current price run-up for businesses across the globe.

Ford Motor Company, the American auto manufacturer, said on Thursday it would cut vehicle production for the rest of this year and fall short of reaching profitability in 2009, a long-held company goal. In a statement, a top Ford executive said rising gasoline prices "are having a tremendous impact on our sales, our manufacturing operations and our profitability."

Meanwhile, Europe's biggest airline, Air France-KLM, warned of a profound reshaping of the world airline industry caused by what it called the "explosion" in the price of oil. And American Airlines said on Wednesday that it would slash flights and begin charging passengers to check bags, part of a company effort to cut costs in the face of skyrocketing fuel prices.

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