UPDATE 1-Shell CEO says no problem with oil supplies

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LONDON, March 17 (Reuters) - Royal Dutch Shell Plc's Chief Executive said on Monday that there is no major problem with world oil supply, making it difficult to explain why prices have hit an all-time peak.

Oil hit a record high of $111.80 a barrel earlier on Monday, the latest leg of a rally that has confounded many of those who produce crude oil or buy it to make useable fuels such as gasoline or diesel.

"From the physical point of view there is no high alarm," Shell's Jeroen van der Veer said at a news conference. "It's difficult to understand why the oil price is where it is."

"No tankers are waiting in the Middle East, there are no queues for the retail stations here."

Some analysts say oil has surged because financial investors have poured cash into commodities to hedge against inflation and the weak U.S. dollar, as well as to beat returns in other markets such as equities.

Others say current prices reflect concerns about oil supplies, such as limited unused production capacity in the world to make up for unexpected supply breaks or to meet rising demand.

The Shell boss, after citing both explanations, said oil prices were expected to remain relatively volatile for a "sustained period," without any change in the underlying market.

"We think that is quite likely because there is so much uncertainty around it, whilst the physical flow is basically the same as when the oil price was a lot lower." (Reporting by Alex Lawler; editing by James Jukwey)