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Fuel Highs

28 May 2008

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There was no respite for hard-pressed motorists despite oil prices continuing their retreat from last week's record high.

The average price of a litre of unleaded petrol rose by 0.19p to 115.14p on Tuesday, with diesel up 0.33p to 128.20p, the AA motoring organisation said.

The figures came as crude oil for July delivery fell below 127 US dollars a barrel, compared with the all-time record 135.09 US dollars reached last Thursday.

The AA said oil prices usually took four to six weeks to be passed through to drivers but added that current volatile market conditions made petrol prices unpredictable.

"There might be a glimmer of light at the end of the tunnel but it does not take much to put a kink in the tunnel," a spokesman said.

The falling oil prices gave a boost to shares in airlines such as British Airways, which have been hit by concerns over the impact of its soaring fuel bill on profits. BA was up almost 4%, while budget airline easyJet gained more than 8% in the FTSE 250 Index.

Oil has been pushed to a succession of record highs in recent weeks as traders buy the commodity as a hedge against the weakness of the US dollar.

This has given central banks such as the Bank of England headaches as they battle with oil-produced inflation pressure while economic growth slows.

Oil prices fell back however as the dollar gained ground against other currencies such as the yen and euro. A rising dollar makes oil more expensive to overseas investors.

Oil has also been hit by a growing belief among analysts that the soaring prices are hitting demand for fuel in the US, which is the world's largest energy consumer. According to recent data from the US Energy Department petrol demand is falling, while Federal Highway Administration figures have shown Americans drove fewer miles in March.

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