The price of crude oil topped out at $40.05 on New York's Nymex exchange for the first time in over a decade.
The price is not far off an all-time high of $41.15, reached in October 1990 after Iraq invaded Kuwait.
The rising cost of oil is driving petrol prices higher worldwide, which could prove to be a factor in November's US presidential election.
The price spike drew an unfavourable response from US Treasury Secretary John Snow, who described the price increase as "unwelcome and unhelpful".
One factor in the concern among traders driving the high prices is the pictures of US soldiers abusing Iraqis in Baghdad's infamous Abu Ghuraib jail.
Dr Leo Drollas of the British Centre for Global Energy Studies said the security premium had continued to grow as concern over what will happen at the time of the 30 June handover increases.
Apart from resistance attacks in Iraq, there was a great deal of worry after the attack on a Saudi office of a foreign oil firm earlier in May.
A week before, the main oil terminal in the southern Iraqi port of Basra was attacked.