Oil leapt to a new record high above $142 a barrel this afternoon, extending gains after surging nearly 4 per cent in the previous session, as tumbling global stock markets helped to trigger a wider commodities rally.
US light crude for August delivery was $1.70 up at $141.34 a barrel by 1.12pm, off a record high of $142.26.
World stocks fell to a three-month low as a fast deteriorating global inflation picture intensified concerns over the outlook for corporate profits, hastening the rush of investors' funds into commodities.
The MSCI main world equity index fell more than 0.6 percent to its lowest since March, with the index on track for the worst monthly performance in percentage terms since September 2002, according to Reuters data.
A 40 percent surge in oil prices this year has prompted US politicians to take steps to try to curb speculation in the oil market, that some blame for pushing up prices.
The US House of Representatives yesterday approved legislation which directs the Commodity Futures Trading Commission (CFTC), the futures market regulator, to use all its authority including emergency powers to "curb immediately" the role of excessive speculation in energy futures markets.
There is a series of draft laws in Congress to attempt to address this issue, but energy market analysts say it has yet to be proved that funds have driven up the price.
"We believe the factors driving oil prices higher are fundamental and not speculative," Deutsche Bank said in a research note.
"Oil needs to rise to $150 a barrel for oil as a share of global GDP to reach the levels that occurred in the early 1980s," the bank said. "At that point we will start to see more signs of demand destruction and an eventual tipping point in oil markets."
Oil prices have doubled from $70 a year ago in response to supply disruptions and geopolitical tensions in the Middle East. Rising flows of cash into commodities from investors seeking to hedge against inflation and the weak dollar have added to gains.
Oil, which had been trading in a range for most of this week, broke out after Libya said it was studying possible options to cut output in response to potential US actions against OPEC countries.