Crude prices rose more than 1 dollar on Tuesday setting a new record close above 78 dollars a barrel on demand concerns.

Light, sweet crude for September delivery rose 1.38 dollars to 78.21 dollars a barrel on the New York Mercantile Exchange after rising as high as 78.28 dollars during the session.

The former highest-ever settlement price for a front-month contract was 77.03 dollars a barrel, set on July 14, 2006. The previous intraday record was seen in mid-July of last year at 77.95 dollars, though the electronic trading recording high stands at78.40 dollars.

Supply demand imbalance

Crude prices have risen more than 20 percent in the past two months on a combination of refinery outages, supply reductions in Africa and the North Sea and forecasts that global supply at the end of the year might not be enough to match demand.

"The rise in the price of oil is very much reflective of the supply demand imbalance that currently exists in the market," said Conley Turner, senior research analyst at Wall Street Strategies.

"Almost every major producer is saying that despite an increase in exploration activity, they are just not finding enough new reserves to mitigate the pace at which current supplies are being used up," he added.

"It a very much a foregone conclusion that oil will hit 80.00 dollars per barrel over the next several weeks and approach 100 dollars per barrel by the next year's first quarter," Conley Turner anticipated.

On Wednesday, the U.S. Energy Information Administration is due to the U.S. refinery utilization increased last week, according to a Dow Jones Newswires survey of energy analysts.

Rise to world market price

On London ICE futures exchange, Brent crude for September delivery rose 1.34 dollars to 77.08 dollars a barrel.

Since last week, crude futures were traded higher on the New York market compared with Brent crude, which hit a record high of 78.64 dollars per barrel last year.

"I do not believe that the U.S. sweet crude (WTI) is high," said John Powell, an independent option market maker at American Stock Exchange. "Rather it has risen from its depressed level to a world market price."

"Historically Brent is priced below WTI. Due to refinery problems, which created high inventories, WTI was depressed," he added.

"WTI was trading well below Brent. When Brent was over 80 dollars per barrel, WTI was trading at 72 dollars per barrel. Brent has recently dropped in price. WTI has increased to world prices as it is now above Brent," pointed out John Powell.