Oil rose to a new peak of $75 (€60.80) a barrel last night as investment funds snapped up crude futures and tension mounted over Iran's nuclear intentions.
US light oil for June delivery was up $1.31 at $75 a barrel, while London Brent was up $1.16 to $74.34.
The surge was driven by investment funds which re-entered the market yesterday after early profit taking. "It's turned around, and it seems to be related to the injection of capital that we believe is coming from pension and mutual funds," said Deborah White of SG CIB Commodities in Paris.
Base metals markets also raced to record highs yesterday.
Investment funds were testing how high the oil price would go before demand suffers, Banc of America analyst Richard Savage said. "We haven't seen significant demand destruction," he said. "The key thing here is that high prices are not due to fundamentals. The market is trying to find that break point."
The Group of Seven leading economies last night stepped up the pressure on oil producing countries to increase output and expressed concern over high energy prices.
Members of the Organisation of Petroleum Exporting Countries (Opec) were set to meet informally in Qatar on the sidelines of discussions between energy consumers and producers. But several Opec ministers have said there is little more the group can do to bring down high prices as the cartel is already pumping at near full capacity.
"Opec can deal with issues it can control, but ... we can't do anything about the politics in the world," Algerian oil minister Chakib Khelil said.
He said oil markets were well supplied and crude inventories were high, so any action to increase output would only be a gesture.
However, finance ministers and central bank governors of G7 countries demanded further steps from oil producers to increase the transparency of their reserves and increase investment in production and refining capacity. They pressed home their concerns at a dinner last night in Washington attended by leading oil producers including Saudi Arabia, Russia and the United Arab Emirates.
Gordon Brown, the UK chancellor of the exchequer, said: "When Opec meets on June 1st, it must look at its production quotas . . . It must look at how we can secure increases in output and in refining."
But Mr Khelil said: "If we do something, it has to be credible. Why should we hide the truth?"
Opec has been pumping 29.9 million barrels per day so far in April, up 100,000 barrels per day from March, tanker-tracking consultancy Petrologistics said.
High prices have yet to halt oil demand growth in the United States or in fast-growing China.
A war of words between Iran and the West over Tehran's resolve to continue its nuclear programme has triggered concern that oil supplies from the world's fourth biggest exporter could be disrupted.
