Oil hits 32-month high as fears grow of the $150 barrel

Gold prices also reached record highs and silver prices a 31-year peak as investors piled into commodities as the dollar fell on delays in US budget negotiations and debt concerns in the Euro zone.

The price of Brent crude rose by $3.61 to $125.87 yesterday evening. Some commentators now believe $150 is looming.

As well as ongoing unrest in the Middle East, concerns that postponed elections in Nigeria could spark a new wave of militant violence there and disrupt supply also contributed to the rise.

The International Monetary Fund has issued a warning that the disparity in demand and supply of oil is likely to push prices even higher and that markets could face further scarcity in oil supplies.

Rob Montefusco, an oil trader at Sucden Financial, said there was some "very large fund action piling into the market in oil and base metals".

Rajiv Biswas of IHS Global Insight also warned that the ability of oil companies to bring on new supplies was now being hindered by global unrest.

"Political risks in large, low-cost oil producers like Iraq and Iran mean that companies face considerable difficulties and restrictions in investing in these countries," he said.

The seven-week old civil war in Libya has cut the country's 1.6 million barrels per day (bpd) output by 80 per cent to an estimated 250,000 and 300,000 bpd.

It took Kuwait two years to restore oil production to pre-war levels of about 1.6m bpd after the 1991 Gulf war.

Fellow Opec member and significant producer Nigeria has postponed parliamentary elections again in some areas although polls will go ahead in most of the country today as planned.

The run-up to the elections has already seen a rise in violence in oil rich states such as Akwa Ibom and Balyesa.

Further supply worries have also emerged in Norway with reports that its crude oil output will be 118,000 bpd in May, significantly down from the provisional estimate of 160,000 bpd in April.

The continuing rise in commodity prices will be of serious concern to economic policymakers given their potential to hinder recovery. High oil prices were partly to blame for a profit warning yesterday from Dutch postal company TNT and Swiss perfume group Givaudan.

Analysts at JBC Energy said in a note:"Awash with still extremely cheap money - the leading policy approach to cope with the recession - the investment community is pouring record volumes into long commodity positions. This drives not only fuel and food prices to record highs, but also raises the costs for other raw materials massively, clearly putting the economic outlook under threat."

Spot gold rose by more than $14 to $1,472.96 an ounce at one point yesterday afternoon. Silver reached $40.28 with some traders predicting a rally to $50 in the coming weeks.

Yesterday's slide in the dollar added fuel to a rally that has already taken gold through a number of record highs this year.

Saxo Bank senior manager Ole Hansen said : "The US budget impasse and the European Central Bank's rate hike have meant the dollar dropping to the lowest level since December 2009. This is undoubtedly a very important ingredient for the rally we have seen.

"New highs should now mean that the market will be looking to establish a new trading range above $1,450 which possibly could take us towards the $1,500 level."