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Oil prices moved above $90 a barrel for the first time setting a record high on the back of renewed political tensions between the US and Iran and fresh concern over supply shortages in the US ahead of the winter months.
Analysts say the recent surge means oil prices could reach $100.
Last week the price of a barrel of US crude oil touched $92.22, having jumped $3.36 the previous night to close above $90 a barrel for the first time. It later edged down to $91.53. Prices are now 50 per cent higher than at the start of the year. London Brent crude also hit a new all-time high of $89.30, before falling to $88.45.
Traders said the price rises were driven by fears of a confrontation between the US, the world's largest oil consumer, and Iran, the world's fourth largest oil producer, following an announcement by Washington that it was imposing economic sanctions on Iran.
America is accusing Iran's Revolutionary Guards of supporting terrorism by backing Shi'ite militants in Iraq.
The tensions add to other fears that military action between Turkey and Kurdish rebels in northern Iraq could disrupt supplies from the world's third largest oil reserves.
Conflict between Israel and Lebanon has also sparked worries that hostilities in the Middle East may affect oil producers.
Meanwhile, a report from America's Energy Information Administration this week said oil stocks in the US fell by 5.3 million barrels last week, confounding analysts' predictions of a 300,000 increase.
Hopes that the Organisation of the Petroleum Exporting Countries would increase production levels were dashed after Abdalla el-Badri, Opec's secretary, said oil markets were well supplied. Economists say geopolitical tensions and conditions in the market would continue to help feed the oil price. "I think there is potential for oil to rise further in the near term," said David Moore at the Commonwealth Bank of Australia.
Volatility in the market and the weakening dollar have also encouraged speculative buying of oil by investors trying to hedge losses. Another cut in interest rates by the US Federal Reserve could send the dollar lower, therefore pushing the price of oil even higher. Experts believe only a slump in the US economy could weigh on the increase in oil prices.
