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LONDON (AP) - Petroleum prices surged Wednesday to the highest levels seen since the Persian Gulf War, raising concerns about worsening inflation and a possible threat to the economies of poor, oil-importing nations.
Prices turned lower later in the day for North Sea Brent oil but continued a rally for the U.S. benchmark West Texas Intermediate crude.
The rebound in oil reflects signs that OPEC is planning to extend production limits as well as a cold snap in the northeastern United States that stoked demand for heating oil and natural gas. Industry analysts said that even though crude oil prices have more than doubled in the past year, countries dependent on imported oil should be able to avoid severe economic pain, barring another big and sustained spike in prices.
Before the late retreat, crude contracts in London reached their highest prices since Jan. 16, 1991, on the eve of the air and missile offensive launched against Iraq by U.S.-led forces in the Gulf.
Much of the speculative buying is a result of expectations that ministers of the Organization of the Petroleum Exporting Countries will agree in March to extend the production limits adopted last year.
Evidence of tight supplies came in an industry report Wednesday of the steepest annual decline in U.S. crude oil inventories in at least a half century.
The American Petroleum Institute said U.S. oil inventories declined by more than 136 million barrels in 1999, a 12.7 percent plunge from the previous year and the biggest drop for a full calendar year in API records going back to 1950.
Contracts for Brent oil for March delivery jumped 25 cents per barrel to peak at $26.30 in early trading on the London International Petroleum Exchange, before slipping a bit. In late trading Wednesday, Brent was down 10 cents from Tuesday at $25.95.
West Texas Intermediate crude for February delivery rose as much as 35 cents to $29.20 on the New York Mercantile Exchange, then also gave up a little ground. It traded at $29.17 a barrel, up 32 cents, in late trading.
``These higher oil prices put inflation back on the corner of the radar screen,'' said Peter Gignoux, managing director of the petroleum desk at Salomon Smith Barney Citibank in London.
But Gignoux dismissed the run-up in prices as ``a blip on the weekly chart,'' saying, ``I think you need to see prices at this level for six months before you start to get concerned.''
Last week, the oil market snapped a six-day losing streak when oil ministers from Saudi Arabia and Venezuela began talking about extending OPEC's production cuts of 4.3 million barrels a day beyond an expected March expiration date.
Gareth Lewis-Davies, an oil analyst at Lehman Brothers, argued that OPEC would have to boost output to protect its own interests. By pumping more oil, OPEC could trim prices and thereby discourage non-OPEC members from flooding the market with their own crude and causing prices to crash.
``It's a question of timing as to when OPEC will increase output. I foresee it happening sooner rather than later,'' Lewis-Davies said.
He suggested that oil prices could fall as soon as this spring, when warmer weather typically causes the seasonal demand for heating oil to wane.
If prices defy such forecasts and stay firm, oil-importing countries in Latin America and Asia would have the most to lose, analysts said.
Thailand and India already have expressed concern over crude prices and are discussing ways to limit any damages.
Thai politicians are weighing whether to cut taxes on gasoline to help maintain the country's delicate recovery from the Asian financial crisis of 1997. The Indian government is considering raising tariffs on imported oil in an effort to discourage its use, Lewis-Davies said.