Oil pushed towards an all-time high of $70 (€57.70) a barrel yesterday as markets fretted over supply threats in Iran, Nigeria and Iraq, as well as strong demand in the US and China.
Iran is at odds with the West over its atomic programme, rebels have knocked out nearly a quarter of Nigeria's output and Iraq's exports are at their lowest since the US-led invasion.
Strong buying from investment funds pushed London Brent crude to $69.70, while US crude swept to a high in the session of $69.45.
"It is pretty clear that we can break $70 without too much problem," said Deborah White, an analyst at SG CIB in Paris.
"We have been getting a massive injection [ of investment fund money] in the energy markets. It is very clear from the price action that they haven't stopped."
The hike in prices was stemmed by mid-afternoon, however, with US crude heading back to $68.00 and London Brent at $68.39.
Oil has climbed by 13 per cent since the start of the year, extending a rally that began at $20 at the start of 2002.
"The ultimate deterrent for the oil market is when the price becomes too expensive for people to fill their tanks," said Ian Henderson, fund manager at JP Morgan Fleming.
"I think they will continue to carry out their travel plans even with oil prices as high as $100 a barrel."
The world's economies are racing ahead despite energy costs at their highest in real terms for a quarter of a century.
US oil contracts for June onwards are already trading above $70, suggesting few traders expect the price to come off suddenly.
"With the US and global economies still showing strong signs of resilience, expectations for oil demand growth in 2006 and 2007 remain robust," Deutsche Bank said in a research note.
Markets were already jumpy yesterday in the wake of the uncertain outcome in Italy's general election.
Niall Dunne, financial markets strategist with Ulster Bank, said the election's close result had been a disappointment for the markets.
He said any government formed now would have a very small margin of power with which to implement necessary economic reforms.
Mr Dunne also worried about the effect of any legal challenge against the actual election outcome.
Uncertainty about a clear winner in Germany last year weighed on the euro for months, he noted, acknowledging that interest-rate trends could help to ease such pressures.
"From a market perspective, the prospect of further euro-zone rate hikes should minimise the impact of Italian political uncertainty on the single currency," said Mr Dunne.
He suggested, however, that an election re-run could signal a return to last year's populist politics, when Italian minister Roberto Maroni called for Italy to abandon the euro.
