The price of oil tested record highs in London today, amid heavy speculative buying and concerns over tight US fuel supplies.

Crude's ascent was mirrored in the foreign exchange markets, where the pound climbed to $2.04, a 26-year high for sterling against the greenback.

The dollar looked to be weighed down by continued jitters over the US housing market, soft US retail sales data from Friday and fears over today's Empire State manufacturing survey for July, which is expected to show a pullback in the sector in the US.

Meanwhile, Brent North Sea crude for August delivery hit $78.40 in London, within a whisker of the record, $78.64. set on August 9, 2006, when a pipeline spill forced BP to close production from Prudhoe Bay, the biggest oil field in the US.

New York’s main oil futures contract, light sweet crude for delivery in August, jumped to $74.44 a barrel, a level seen most recently last August 11.

Michael Davies, the Sucden analyst, said: “Just as at the end of last week, there is a continuous inflow of fresh speculative and fund money supporting the prices."

Brent prices were also lifted by upcoming maintenance work in the North Sea, which raised fears of a supply crunch.

Mr Davies added: “Tightening supplies from the North Sea region are still seen as supportive of crude futures, while market participants remain concerned about seasonal maintenance on North Sea oilfields at the end of the summer, in addition to unexpected outrages.”

Traders are also focusing on tight supplies of gasoline, or motor fuel, in the United States during the summer driving season.

The US Department of Energy had said last week that gasoline reserves climbed 1.2 million barrels in the week ending July 6.

The figures beat forecasts of a gain of 825,000, but they were still 3.8 per cent lower than a year earlier.

Prices were also underscored by persistent geopolitical jitters in Nigeria, the world’s eighth-biggest crude exporter.

Crude futures had rallied strongly last week after the International Energy Agency raised its 2008 forecast for oil demand by 2.5 per cent to 88.2 million barrels a day.

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