No return to cheap energy, BP chief warns

Speaking as crude hovered close to Friday's record highs, Hayward said oil production was too low and would remain so while governments in oilproducing nations failed to encourage new exploration.

His comments came as investment bank Goldman Sachs warned that oil would hit $150 a barrel by the end of the summer. The prediction came just days after Morgan Stanley made a similar forecast, adding to the frenzy that pushed crude to almost $140 last week.

UK petrol prices have rocketed, with the price of a litre of diesel now topping 130p on most forecourts, and an average of almost 117p for unleaded.

Hayward said oil prices were volatile because high taxes in oil-producing countries were a disincentive to investment by exploration companies. During the years of low oil prices, companies did not invest in finding new resources.

Now the price is high enough to make it worthwhile, governments are imposing swingeing taxes that are acting as a disincentive, he said, adding: "The result is a supply chain being stretched to breaking point."

His complaints about tax came despite BP having made almost £14 billion profit last year.

"In a well-functioning market where supply and demand are balanced, prices should be stable. Where prices are high, however, they show that supply is not responding adequately to rising demand...and that is where we find ourselves today," Hayward told an oil and gas conference in Kuala Lumpur.

Jeffrey Currie, head of global commodities research at Goldman, told the conference that crude oil was heading for $150 a barrel.

Some investors have voiced concerns that the current high oil price will soon tumble, creating chaos in oil companies' investment plans. But Currie said: "Prices will plateau, not collapse. Demand keeps going up but supply can't keep up."

Iran's Opec representative, Mohammad Ali Khatibi, also said yesterday that the price of crude oil is set to hit $150 a barrel by the end of the summer.

New York's main oil futures contract, light sweet crude for July delivery, eased $1.06 to $137.48 a barrel after making its biggest one-day jump ever on Friday, soaring $10.75 a barrel to close at a record $138.54.

Brent July crude dropped back $1.30 to $136.39 a barrel after also hitting new heights in London last week as a result of the continuing weakness of the dollar.

Opec has rejected calls for an output quota rise. Of the cartel members, only Saudi Arabia, the biggest producer, has shown any flexibility on calls to pump more crude.

Gold today rose to its highest in almost two weeks, moving back above $900 an ounce as speculative buying picked up after oil's recent surge. It hit $904.10, its best since 28 May.