Sept. 11 (Bloomberg) -- Crude oil rose to a record close of $78.23 a barrel in New York on speculation that OPEC's agreement to increase production by 500,000 barrels a day will be insufficient to meet strengthening demand.

``We are going to need more than 500,000 barrels to meet rising demand,'' said Tom Bentz, a broker at BNP Paribas in New York. ``We are also up on speculation that the interest rates will be cut, which would help the economy and lead to higher demand for oil.''

Saudi Arabia led the group to adopt the increase from OPEC's current production starting in November. Global oil consumption will rise 1.5 percent this year as production stagnates, the Energy Department reported today. The target will be 27.2 million barrels a day beginning Nov. 1, Kuwait's Oil Minister Mohammed Abdullah al-Aleem said in an interview.

Crude oil for October delivery rose 74 cents, or 1 percent, to settle at $78.23 a barrel at 2:48 p.m. on the New York Mercantile Exchange. It's the highest since trading began in 1983. The previous record close of $78.21 was reached on July 31. Prices are up 19 percent from a year ago.

Brent crude oil for October settlement rose 90 cents, or 1.2 percent, to $76.38 a barrel on the London-based ICE Futures Europe exchange. It was the highest close since July 31.

``This shows that the Saudis still run this group,'' said Bill O'Grady, director of fundamental futures research at A.G. Edwards & Sons in St. Louis. ``The Iranians and Venezuelans made it very clear before the meeting that they had no intention of agreeing to an increase.''

Prodded by the U.S., Saudi Arabia overcame opposition by fellow OPEC members Venezuela, Algeria and Iran who said the world is adequately supplied with oil. Saudi Arabia is the largest member of the Organization of Petroleum Exporting Countries. High oil prices are a drag on the economy in the U.S., the biggest oil consuming nation.

Economic Concern

Prices fell 5.3 percent last month on speculation that subprime-mortgage losses in the U.S. will spread through the economy, reducing growth and fuel demand.

Federal Reserve Chairman Ben S. Bernanke said in a speech today in Berlin that the ``global saving glut'' is helping to keep interest rates low. He said on Aug. 31 that the central bank would do what's needed to keep the credit rout from sinking the broader economy.

``The Saudis are concerned about the U.S. slowdown,'' said Adam Sieminski, Deutsche Bank's chief energy economist in New York. ``The possibility of an economic downturn is their focus at the moment but when you look ahead there will a different problem. Robust demand and lagging non-OPEC supply suggest strong support for oil prices beyond 2010.''

Increased Consumption

Global petroleum consumption will probably increase 1.27 million barrels to 85.7 million barrels a day this year, the Energy Department said its monthly Short-Term Energy Outlook. Demand will rise 1.51 million barrels, or 1.8 percent, to 87.2 million barrels a day in 2008, the report showed.

World oil production is expected to average 84.64 million barrels a day this year, up 14,000 barrels a day from 2006, according to the department. Output is forecast to rise 2.42 million barrels to 87.1 million barrels in 2008.

``The OPEC increase is down the road, we need the extra barrels now,'' said John Kilduff, vice president of risk management at MF Global Ltd, the brokerage unit of Man Group Plc, in New York. ``We're expecting a further inventory decline tomorrow, which will leave us with spectacularly low gasoline stocks. This will leave us vulnerable to any refinery problems.''

Crude-oil supplies dropped 2.7 million barrels from 329.7 million barrels in the week ended Sept. 7, according to the median of responses by 15 analysts before an Energy Department report tomorrow. Gasoline inventories fell 500,000 barrels from 191.1 million the prior week, according to the survey. It would be the sixth-straight decline.

Commodity Rally

``You are seeing a broad rally in commodities,'' said Phil Flynn, vice president of risk management at Alaron Trading Corp. in Chicago. ``When the subprime story broke there was an aversion to risk and a lot of money moved to the sidelines. With a falling dollar and the prospect of falling interest rates commodities are one of the best investments on the board.''

Gold rose to the highest since May 2006 and silver climbed as the dollar traded near a record low against the euro, boosting the appeal of commodities as alternative investments.

The Reuters/Jefferies CRB Futures Prices Index of 19 commodities rose 2.2 percent to 316.97, the highest since Aug. 3.

To contact the reporter on this story: Mark Shenk in New York at mshenk1@bloomberg.net.

Last Updated: September 11, 2007 17:18 EDT