Oil price sets new record

Crude oil prices surged to a record high above $143 per barrel today as tensions simmered between Israel and Iran over Tehran's nuclear programme and the dollar hit three-week lows against the euro before steadying.

Oil's rise added to the deep concerns about rising inflation and slowing economies plaguing world markets on the last day of another torrid half-year.

After recording its biggest first-half rise in 9 years, crude oil rose was up more than two dollars or 1.7 percent to $142.50 a barrel by 1130 GMT -- having set a new record of $143.67 earlier in the day.

Earlier today Infrastructure Minister Austin Gatt told Parliament that high oil prices were structural and no one was expecting prices to revert to pre-2004 levels. He said the government would announce increases in the power surcharge tomorrow, pointing out that at current rates, including hedging, the surcharge should be 115 percent but the government is seeing how it could reduce it. The surcharge is currently 50 percent.

Middle East tensions simmered over the weekend. Iran's foreign minister said on Sunday he did not believe Israel was in a position to attack his country over its nuclear programme, while an Iranian general announced plans to prepare 320,000 graves for enemy soldiers.

"Oil is now a very jittery and news-sensitive market that is running on rumours and concerns of future supply disruptions," said Mark Pervan, a senior commodities analyst at the Australian & New Zealand (ANZ) Bank in Melbourne.

And is a sign that a vicious circle may have developed, some investors said oil price rises were not only feeding inflation but also feeding off it.

"Inflation concerns encourage investment in real assets such as oil and gold," said Frances Hudson, an investment director at Standard Life Investments.

The latest oil rise was also helped by the U.S. dollar's fall to a one-month low against a basket of major currencies and a three-week low against the euro.

Illustrating the extent of the inflation pulse being sent by oil and boosting the euro briefly against the dollar, data released on Monday showed euro zone inflation rising to a record 4 percent this month.

The euro caught a bid because that inflation picture makes the prospect of a European Central Bank interest rate rise on Thursday even more likely.