U.S. oil rose above $72 on Tuesday, and London Brent hit another 11-month high above $76, the 10th straight day of gains that have lifted crude by $6 to within striking distance of its record.
The rally coincided with more tension between the United States and Iran and a big rise in speculative investment flows.
U.S. light, sweet crude for August deliverywas up, as was London Brent crude.
An Iranian newspaper, quoting a senior adviser to Supreme Leader Ayatollah Ali Khamenei, said Iran was producing centrifuges for refining uranium domestically, limiting the impact of United Nations sanctions. The U.S. Navy said it had sent a third aircraft carrier to the area where its Fifth Fleet is operating, including waters close to Iran.
"It's the Iran story that it is producing its centrifuges for refining uranium," said Nauman Barakat, senior vice president at Macquarie Futures USA, explaining the price spike.
Some investors and analysts said a wave of speculative investment was the main driver. Speculators boosted their long positions in the New York Mercantile Exchange crude oil market to a record in the week to July 3, data showed.
Olivier Jakob, an analyst at Swiss-based Petromatrix, noted the continued rise in prices and open interest -- the number of contracts that have not been closed -- pointed to more investment money flowing into oil in recent days.
Citigroup analysts calculated the influx accounted for over $10 of the move higher since the start of 2007, when Brent crude oil was below $60 a barrel.
"Financial players have now firmly moved ahead as the main near-term driver of oil prices," Citigroup said.
The rally in oil and other commodities at the start of the third quarter has lifted the 19-contract Reuters-Jefferies CRB Index to its highest this year.
It has also had a knock-on effect on the share prices of energy companies. The FTSE Global Energy index has risen 18 percent since the start of the year and over 25% in the last four months.
"There is a steady flow of fund money coming in," said Markus Mezger, partner at Tiberius Services AG, a Swiss-based asset manager in commodities futures.
Rally Yet to Run Its Course?
Predictions that consistently high oil prices would act as a brake on economic growth have yet to be borne out.
"The world has demonstrated it can live with $70 oil," said analyst Geoff Pyne of EnerpyLtd.com.
"There are no huge inflationary risks from oil and economic growth is picking up outside the United States."
Barclays Capital technical analysts, who study charts of past price movements, forecast a period of consolidation for Brent crude above $72 ahead of a run at $78.65, the record touched in August 2006.
"Retracement levels of the 2006/07 fall have been swept aside on both sides of the Atlantic," they said.
Societe Generale concluded the signals were clearly bullish.
"Last year's highs are the next targets," the bank wrote.