With oil prices setting fresh highs on a daily basis, experts are warning that the current spike in prices may not be followed by the sharp falls that have often come after previous jumps. They say dearer oil could become a fact of life, spelling further pain for motorists already paying more than 80p a litre at the pumps.
The price of US light crude hit a new record yesterday of $44.24 (£24.23), the highest in the 21-year history of the New York Mercantile Exchange. In London, Brent crude surged to $40.45, half a dollar below the all-time high set in October 1990 during the run-up to the first Gulf war.
The latest rise is due to brinkmanship between the Kremlin and oil firm Yukos over unpaid taxes.
With Yukos, which produces 2% of the world's oil, facing bankruptcy, it is small wonder the markets have taken fright.
On top of that, the United States warning of possible al-Qaida strikes in New York and Washington have made markets even more jittery.
Oil markets have always been buffeted by events but this time feels different, because they all seem to point to higher prices.
In the past decade or so, markets have always known that the producers' cartel, Opec, which produces around a third of the world's oil, had spare capacity and could open the taps if necessary to keep a lid on prices.
But now that is no longer the case, as Opec secretary-general Purnomo Yusgiantoro said yesterday.
"The oil price is very high, it's crazy. There is no additional supply."
His comments, along with the sabotage of a pipeline feeding Iraq's main refinery, were enough to push prices to the record highs.
Analysts at PFC Energy believe further rises lie ahead. The firm says without any significant news on the horizon which could bring down prices "and crude demand close to its peak for the year, speculators will have the opportunity to continue to push for new highs in the weeks ahead".
Opec has progressively pumped up its production since a crucial meeting in June, which initially pushed Brent prices down sharply from $39 a barrel to just over $33.
But since late June, prices have resumed their relentless upward march and are now up 33% since the start of the year.
That is still much less than during the 1974 oil crisis, when the price quadrupled, or the doubling in price during the 1980 shock, but it has started to make people fret - especially when demand, particularly from the US and China, is so strong.
The Organisation for Economic Cooperation and Development estimates world oil demand will be up 2.5m barrels per day this year at just over 80m bpd.
Analysts think the market is unlikely to sell oil in any meaningful way while there is so much uncertainty in the Middle East and such strong demand.
Indeed BP chairman Lord Browne warned at the weekend that oil prices would be supported in the short to medium term by uncertainties over supply.
Fears of unrest in Saudi Arabia, the world's biggest oil exporter, lie at the heart of the matter.
The kingdom has said it will produce 9.5m bpd this month, 1m bpd higher than two months ago but only 1m bpd below the country's full capacity. Saudi Arabia is the only country with any meaningful spare capacity in the foreseeable future.
Iraq has huge oil reserves, but in the wake of the war is only producing about 1.7m barrels a day - a situation that is hardly likely to improve soon.
Outside Opec the only other major producer that can pump any more oil is Russia. It is producing just over 8.5m barrels a day, up from 6m in 2000. In the longer term, its production could rise to 12m to 14m bpd, but that is not going to happen immediately.
Nariman Behravesh, an analyst at the World Markets Research Centre, has produced three possible scenarios for the oil market: crisis, crunch or crumble.
The crisis, he says, would be if terrorist attacks in the Middle East affected production, causing oil to shoot up to $65 a barrel.
The crunch would be oil staying where it is, which would stifle, although not clobber, economic growth around the world.
Lastly, the crumble would see Opec pump up supply a bit further, world demand slackens off and the Middle East stays quiet. This would be good for world growth, but few analysts think it likely.
Goldman Sachs analysts Mike Buchanan and Jeff Currie argued recently that oil prices will remain at least $10 a barrel higher than the $20 a barrel long-term average for the foreseeable future, as producing countries need higher prices to finance the investment required to increase supply in line with rising demand.
"The underlying fundamentals of the oil market suggest that high prices are here to stay," they say.
Julien Seetharamdoo at consultancy Capital Economics thinks that some of the fears over rising oil prices may be overdone.
He is not convinced Yukos will go bankrupt or, if it did, would be allowed by the Russian government to suddenly cease pumping its oil.
He said that with world economic growth expected to moderate in the second half of 2004 and in 2005, oil supply should catch up with demand.
"We therefore continue to expect a fall in oil prices to around $28 a barrel for Brent crude by the end of 2004 and $25 by mid-2005," he said.
Motorists can only pray he is right. Petrol prices, already the highest in Europe, have risen from 75p a litre at the beginning of the year to about 82p, with experts predicting the latest surge in oil prices will soon push petrol up to 85p a litre.
