Light crude hit a closing high of $US71.35 a barrel and traded as high as $US71.60 a barrel on the New York Mercantile Exchange, an all-time record.
The peak price eclipsed the record of $US70.85 dollars a barrel last August 30 in the wake of Hurricane Katrina, which ravaged US oil operations in the Gulf of Mexico.
The price of Brent North Sea crude oil also hit records in London as the market feared that an attack on Iran could lead to a disruption of its oil exports.
The June contract for Brent traded as high as $US72.64 dollars a barrel, an all-time record, before settling at $US72.51.
Iran nuclear standoff
Washington has accused Iran, the world's fourth-biggest crude producer, of working secretly to build nuclear weapons under cover of a nuclear energy program.
The US government has declined to rule out possible military action as an option though it says it is pursuing a diplomatic approach.
Since its shores line the narrow Straits of Hormuz, one of the world's busiest shipping lanes, Iran could quickly hit both military and commercial shipping with missiles launched from land, air or sea as well as cripple maritime traffic with mines or sunken ships, analysts say.
On Tuesday, US President George W. Bush refused to rule out force, saying that "all options are on the table" regarding Iran, as top world powers met in Moscow to align diplomatic strategy.
The US administration had said that an announcement by Iran that it was working on advanced P-2 centrifuges to enrich uranium was a further signal that the Islamic republic's nuclear program was not purely civilian.
Further fuelling tensions in the Middle East region was a suicide bomb attack in Israel's commercial capital of Tel Aviv late Monday that left nine people dead and dozens wounded, dealers said.
Market participants also remain anxious over Nigeria, Africa's biggest exporter of crude, whose total crude production has been slashed by some 20 percent by rebel attacks on energy installations in the southern Niger Delta.
Only the beginning
Jason Schenker, analyst at Wachovia Securities, said the rally in prices may not be over.
"The prices we've seen are indicative of the fact that there's
genuine market concern that the situation with Iran could escalate further," he said, noting that the market fears "a further deterioration of the geopolitical situation that could potentially result in some kind of disruption" in oil supplies.
"People are still concerned about Iran and potential military
action," Global Insight analyst Simon Wardell said Tuesday.
"It looks like there's going to be a run towards 75 (dollars),"
he added.
Wardell warned that prices could rocket to above 150 dollars per barrel if Iran retaliated to any US attack by disrupting oil
shipping off its coastline.
Adjusted for inflation, current oil prices remain below levels
reached after the 1979 Iranian revolution when they surged to upwards of $US80 per barrel in today's money.
"If we take the hypothesis that the current crisis with Iran leads to a worse crisis and that there's military action of some sort, oil prices could very easily go up to 100 dollars," said Francis Perrin, the editor of industry magazine Arab Oil and Gas, in an interview with AFP.
"Oil prices are going to continue to rise because even if we
don't get into catastrophic scenarios, Iran remains a worrying
factor."
Traders also believe further increases in the long term are
likely in any event due to booming demand for oil in emerging economies such as China and India at a time when supplies are becoming tighter.
Tensions over Iran come at a time of strong demand for energy.
The Organization of Petroleum Exporting Countries -- whose second-biggest member is Iran after kingpin Saudi Arabia -- said Tuesday that global oil demand grew by almost one million barrels per day in 2005.
London's Brent contract has been striking record highs since
April 10 on market concerns that the United States might launch strikes at uranium enrichment facilities in Iran.
Soaring Australian prices
Increases in world oil prices have created expectations in Australia that petrol could hit $A1.45 within weeks and force people to consider how they spend their money.
Retailers say consumers have already started to cut back on goods such as DVD’s and CD’s and may yet do so with cafes, restaurants and takeaway food.
The NRMA says petrol is currently at $A1.35 but there have been warnings that it could reach as high as $A2.
The service station association says a raise of at least 10 cents could come soon.
“You’re living a fool’s paradise if you think you’re just weathering a storm and everything will go back to normal. Normal is high energy prices,” said the association’s Chief Executive officer, Ron Bowden, told the Sydney Morning Herald.