Motorists could find themselves paying £5 a gallon for petrol this summer, after a leading energy broker gave warning that $120 a barrel oil was on its way.

The oil price surged closer to $115 a barrel today, breaking new records as the weakening dollar forced investors to seek haven in commodities. Prices rose 67 cents to $114.46 a barrel this morning. In London, futures for Brent crude were up 69 cents to $112.27 a barrel.

Further increases are expected this afternoon when a key report on US fuel stockpiles is released.

Robert Laughlin, energy broker with MF Global, said: "Oil at over $120 a barrel is highly likely in the second quarter because OPEC don't want to give us fresh barrels despite being asked by George Bush, Gordon Brown and everyone else."

"The trend for prices is certainly upward and I would not be surprised to see $120 a barrel oil between now and the end of June," Mr Laughlin said.

Drivers across the UK are paying a record average of 107.94p for a litre of unleaded petrol according to the latest figures from the AA. Every $2 dollar increase in the cost of oil adds roughly a 1p to a litre of petrol at the pump. However, it takes about four to six weeks for the impact of rising oil prices to be seen at the forecourt.

Diesel broke through the £5 a gallon barrier more than a month ago and is now selling at a record 117.13p — or £5.32 a gallon.

The surging cost of petrol at the pumps means that the cost of filling up a typical 50 litre family petrol car is £7.63 higher than last year, with a diesel version £11.09 dearer to fuel.

Luke Bosdet, an AA spokesman, said: "We are getting pretty close to the £5 gallon and we have already seen some motorway service stations charging 110p a litre for petrol."

Contracts for New York's light sweet crude topped $114 a barrel for the first time yesterday, hitting $114.08 in after hours trading. Brent North Sea crude for May reached a record $112.08.

Collins Stewart, the UK broker, also slashed forecasts for airlines after adjusting its models to take into account a sustained period of oil over $110 a barrel.

The broker made cuts of 12 to 53 per cent on earnings. The worst affected, according to its model, are Aer Lingus and Ryanair.

Supply constraints are expected to be revealed by the US Department of Energy later today. Bad weather in the Gulf has already caused problems this week. On Monday Mexico said that it had closed four export terminals while Shell said that shipments through its 1.1 million-barrel-per-day Calpine pipeline in the southern United States had been temporarily disrupted.

Reports also emerged of minor supply outages in Nigeria, Africa’s biggest oil producer, after rebels caused a fire at the Beniboye oil plants in the Delta State of Nigeria.

"The physical oil market appears tight and appears highly sensitive to news of any supply interruption,” John Mayer, an analyst with Fairfax, said.

Oil prices in the US traditionally surge in the summer, the so-called driving season, when motorists drive across country for their holidays and energy consumption in the home peaks, due to air conditioning.

Traders forecast that the supply issues would continue to have a greater impact on the oil price than some signs of weakening demand from a slowing US economy, forcing the oil price still higher.

Oil also continues to benefit from an inflow of money as investors seek higher returns than they can get in financial markets at present.

Opec left its estimate of growth in world oil demand in 2008 unchanged on Tuesday, arguing that while high prices and slowing economies will brake demand in major industrialised countries, appetite for crude will remain robust elsewhere.

The cartel, which supplies 40 per cent of the world's crude oil, said that soaring prices reflected the volatility of the oil price largely due to external factors including financial market turmoil, the weaker US dollar and a worsening outlook for the US economy.

Opec is forecasting world oil demand to grow by 1.2 million barrels per day in 2008 to average 86.97 million barrels per day.

The International Energy Agency (IEA), which advises major industrialised nations, recently reduced its estimate of global oil demand this year to 87.2 million barrels per day, 310,000 barrels per day less than its previous estimate.

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