Oil prices have briefly touched $100 a barrel, nearing the record peak of $101.70 in 1980 when a war between Iran and Iraq triggered an oil supply crisis.
Analysts said that geopolitical turmoil, tight energy stockpiles, and a weak US dollar triggered a flood of speculative buying, leading to the price rise.
Rising economies in China and India fed by oil and gasoline have sent prices soaring over the past year, while tensions in oil producing nations like Nigeria and Iran have increasingly made investors nervous and invited speculators to drive prices even higher.
Nauman Barakat, an energy trader at Macquarie Futures, the trading arm of Macquarie investment bank, said: "It is a combination of things - a weaker dollar, expectations of further interest rate cuts - and Nigeria."
Nigerian link Attacks on Tuesday in the Nigerian oil city of Port Harcourt have heightened concern over the potential for further disruptions in shipments from the eighth largest oil exporter.
Olivier Jakob, the managing director of Petromatrix, said: "With the military and fighters engaged in a violent tit-for-tat, the risk for oil disruptions in Nigeria remains higher than in the past few months."
Frequent attacks by fighters since February 2006 have driven thousands of foreign oil workers from the oil-rich Niger Delta and cut oil exports by about 20 per cent.
"We find it difficult to contemplate any scenario which doesn't see annual average prices going steadily higher," said Kevin Norrish, an analyst at Barclays Capital in London.
Slowed oil output by the Organisation of the Petroleum Exporting Countries (Opec) helped prices to rise by nearly 58 per cent last year, the biggest annual gain in a decade.
Opec, a source of more than a third of the world's oil, chose to keep supply steady at a meeting in December, rather than lift output to lower prices as consumer nations had been urging.