Oil surged past $65 a barrel in the global markets yesterday to a fresh six-month high after OPEC decided to keep output unchanged. A steep drop in US crude inventories and a weak dollar also contributed to the rise.

US crude oil for July delivery on Thursday settled up $1.63 to $65.08 a barrel, the highest settlement since 5 November 5, after hitting an intraday high of $65.44. London Brent crude rose $1.89 to settle at $64.39 a barrel.

US crude stocks fell by 5.4 million barrels to 363.1 million in the week to 22 May, the US energy administration said, as refiners ramped up output ahead of the summer.

OPEC ministers meeting in Vienna opted to leave target output levels unchanged as they believe a strengthening global economy and signs of rising demand would support prices.

Some members of the 12-member oil cartel voiced concern that high global inventories could weigh on prices, but Saudi Arabian oil minister Ali al-Naimi said demand was rising and would drain away excess supplies.

"The price is good. The market is in good shape. Recovery is under way. What else could we want?" he said.

Crude should stay in a $60-to-$70 a barrel range for the rest of the year, OPEC Secretary General Abdalla el-Badri said. ''If we are able to keep this $60 to $70 price for the remainder of the year, it will be fine,'' el-Badri said in a Bloomberg Television interview.

Other OPEC ministers said the group would work toward finishing previously announced reductions. OPEC has yet to complete output cuts totalling 4.2 million barrels a day agreed to last year.

Despite OPEC's optimism about demand, revised EIA estimates for US oil consumption in March showed demand down more than 5 percent from year-ago levels to the lowest level for the month in 12 years.

Oil gained 28 per cent in May as equities rose and the US dollar weakened, spurring demand for commodities. Japan said today that its industrial output climbed the most in at least six years in April, improving the outlook for a rebound in fuel demand.

Oil is poised for the largest increase since March 1999, when Asia was recovering from the 1997-1998 financial crisis and fuel demand started rising in China and India.

Price rise could hit India's oil reforms
Just when industry was expecting great things from the new government, the spike in crude oil prices in recent weeks could prevent it from carrying out oil market reforms.

The government is said to be considering a host of reforms, including allowing auto fuel to be sold at market rates, but now these plans are threatened as companies selling compulsorily subsidised petroleum products would be hard hit.

Rising crude oil prices have begun taking their toll on oil marketing companies after a brief respite between January and March. According to India's top oil marketer Indian Oil Corporation, fuel retailing companies have been incurring losses Rs 1.54 for every litre of petrol they sell, Rs 11.80 per litre of kerosene and Rs 88 for every LPG cylinder.