Motorists face more misery at petrol pumps as oil prices hit record high

Investors fear a supply crunch ahead of winter after America imposed new sanctions on Iran and gunmen shut more drilling platforms in Nigeria.

The only thing stopping the cost of a litre of petrol nudging beyond the £1 barrier at the moment is the weak US dollar which has tumbled to a new low.

British motorists are protected from soaring fuel costs because all oil is sold in dollars and the exchange rate today plummeted to $2.04 per pound.

Currently unleaded is averaging 98.39p per litre across the UK, just below the record of 98.5p and diesel is averaging an all-time high of 100.9p per litre.

However, if there was an exchange rate shift with Sterling buying less American money, petrol prices would surge to a record level.

The cost of a barrel of crude oil is closing in on its inflation-adjusted high of $101.70 of April 1980 following the Iranian revolution and at the start of the Iran-Iraq war.

"The market is founded on fear and supply-side concerns," said Gerard Burg, an analyst at National Australia Bank.

Yesterday the United States placed new sanctions on Iran, the world's fourth biggest oil exporter, and accused the country of spreading weapons of mass destruction.

The Middle Eastern state has been locked in a diplomatic battle with the United Nations over its nuclear programme.

And an attack on a Nigerian oil rig operated by Italian firm ENI reduced production by 50,000 barrels per day.

Worried investors were reminded that Africa's biggest producer is a long way from restoring order and normal output in the oil-rich delta.

Fears of a supply crunch have been underlined this week by producer cartel OPEC.

Abdullah al-Badri, OPEC's Secretary General, said world oil markets were well supplied, while dollar weakness and a flood of speculative investment had helped push prices up to record levels.

Energy officials from OPEC nations Venezuela and Algeria have also poured cold water on hopes that OPEC would raise supply when it meets informally in Saudi Arabia next month.

"The high prices are not coming from a lack of production," Chakib Khelil, the Algerian Energy Minister, said.

OPEC has already agreed to boost production by 500,000 barrels per day from November 1, but the United States has called on the group to increase output further.

David Fyfe, supply analyst at the Paris-based International Energy Agency, today echoed the call, insisting that there would be yet more upwards pressure on crude prices unless OPEC upped production ahead of the seasonal pick-up in demand next month.

He said: "We need more oil from Opec to replenish stocks before the winter.

"It's been relatively cold but the seasonal shift in demand doesn't begin until November. It's early days yet.

"We have expressed for some months, some concerns about market fundamentals for the winter if we do not get more supply from Opec over and above what they have already agreed.

"Without that, stocks could tighten further."

Yesterday, Shell's finance director, Peter Voser, became the first Western oil company executive to agree that political tensions and speculation were behind the soaring oil price.

Mr Voser said: "We find it hard to explain oil at $100 a barrel.

"I don't see anyone queuing for fuel and nor are there any physical shortages. The price seems to be driven by some speculation and also has a political premium in it, rather than actually some of the fundamental drivers."

Rising crude oil demand across the world, especially from leading consumers the United States and China, has driven oil's current rally.

Investment funds have also been buying oil and other commodities, seeking respite from turbulent financial markets.

The soaring oil price and plummeting dollar will put renewed pressure on the Federal Reserve to cut interest rates next week.