Demand for diesel and related fuels has helped push crude oil above $50 a barrel, but record high prices for the life blood of industry now risk choking profit margins and economic growth around the world.

Gas oil (diesel) futures traded on London's International Petroleum Exchange settled above $440 a tonne for the first time this week. Retail diesel in the US hit 200 cents and Nymex heating oil futures soared to a record 139.80 cents a gallon last week.

Unlike the summer's gasoline-led oil rally, soaring diesel prices - encompassing the full range of middle distillate products including kerosene, heating oil and jet fuel - hit straight at corporate profitability.

They feed directly to raw material costs on energy-intensive industrial metals like steel and aluminium and eat away at economic growth as rising heating oil bills sap spending in big consuming nations like Germany and the United States.

"The balance is perhaps shifting towards the impact on transport and distribution costs and hence producer prices, and the extent to which suppliers can pass on those increased costs or have to absorb them out of profits," Paul Horsnell, energy analyst at Barclays Capital, said.

Eurozone producer prices are running at their fastest pace on an annual basis since May 2001, rising 0.4 per cent in August from a month earlier and 3.1 per cent from a year ago.

"Recent developments in the oil market do not suggest a rapid decrease of oil prices and so associated inflation pressures are likely to persist for some time," the European Commission said its quarterly report this week.

The impact of rising raw material costs weighs heavily on investor sentiment given recent corporate warnings.

Shares in Italian appliance maker Merloni took a big hit last week after it followed the lead of Electrolux, the world's biggest homes appliance maker, to warn that rising steel and oil-derived polystyrene prices would hit profits.

"When steel prices started rising, many durable goods companies argued that changes in the supply chain meant that they would not be affected in the same way as in the past," analysts at ING Financial Markets said in a note to clients.

"After the profit warning from Electrolux, specifically referring to steel prices, it is hard to be confident," it said.

David Bowers, chief European and global equity strategist at Merrill Lynch, draws attention to the indirect impact of higher oil prices on businesses as electricity rates shoot up.

"As electricity contracts are renewed, there could be a material rise in costs. We could be hearing a lot more about margin squeezes when the results season gets underway," he said.

The price of gas - a key fuel for electricity generation - tends to move in line with heating oil prices during the northern hemisphere winter and analysts expect electricity suppliers to use higher oil prices as an excuse to hike charges.

Apart from gas and coal, households in the US, Europe and Japan also rely on heating oil, diesel and kerosene to keep warm in the winter so many analysts expect oil prices to breach the $50 mark several times over the next quarter.

Heating oil stocks are low on both sides of the Atlantic, speculative long positions at a fraction of their March highs and global demand is still surging while supply risks remain.

A breakdown of eurozone producer price inflation shows energy prices up 1.4 per cent in August from July and 5.4 per cent up from a year ago - both the biggest increases since May.

In the eurozone's biggest economy, German producer prices rose at the quickest annual rate in three years in August, again boosted by record high oil and steel costs.

In Asia, China's prices for August rose 6.8 per cent from a year ago, higher than the 5.2 per cent in the year through July. Compared with July, August was up 0.6 per cent, rising at the fastest rate since before the 1997 Asian financial crisis.

And while inflation is not surging so strongly in the US - PPI dipped 0.1 per cent in August and the core index dropped 0.1 per cent to mark its first decline since February - high oil prices pose risks to growth.

"Across many of our economies, including many that have faced recent challenges, growth is strengthening and prospects are bright," US Treasury Secretary John Snow said at a meeting of G7 nations over the weekend. "But we cannot rest on our laurels - risks remain, notably from oil prices."