TURMOIL in the Middle East sent the price of oil to a new high yesterday, threatening motorists with further price increases and prompting share- price falls on both sides of the Atlantic.

In New York, oil futures reached a record high of $78.40 before falling back, while Brent also breached the $78 level, as traders reacted to the Israeli attacks on Lebanon.

On Wall Street, the Dow Jones industrial average finished the day 107.00 points down at 10,739.30, coming on top of the 166-point slide on Thursday amid fears of a protracted war between Israel and Lebanon. The surge in crude is likely to push average petrol prices towards the £1 per litre mark, a level already reached in some parts of the country.

Petrol retailers are being squeezed by the soaring cost of wholesale unleaded petrol. Prices in the Rotterdam spot market have jumped by more than $40 per tonne to $813 per tonne over the past two days.

According to Wood Mackenzie, the consultants, the wholesale price per litre of unleaded petrol is now close to 33p, compared with the average cost at the pump of 35p, excluding fuel duty and VAT. Oil industry experts reckon that retailers need a margin of at least 5p per litre to cover their overheads and make an acceptable return. That suggests that prices need to rise by about 3p, raising the current average price from 97p to £1 per litre.

In London, the FTSE 100 dropped 57.4 points to 5,707.6, its lowest level in a fortnight, after a week in which it has lost 181 points, or 3 per cent. The surge in crude prices is occurring despite rising comfort levels in the underlying crude oil market. Opec, representing oil exporting countries, issued a statement seeking to take the heat out of the oil price: “The market remains well supplied with crude, and, with crude volumes continuing to enter the market well in excess of demand, OECD stocks are above their five-year average levels.

“Geopolitical developments, over which Opec has no influence, have been behind this sudden rise in volatility.”

However, speculators continue to disregard fundamentals and bet on geopolitical tensions pushing prices even higher. In the futures market, oil is already selling at prices above $80 per barrel for delivery in winter months. The oil price is edging towards levels equivalent to its peak in 1979, when it reached $86 in real terms, adjusted for the effect of inflation.

Markets were also troubled by American figures showing a surprise 0.1 per cent drop in retail sales in June, a sign that high petrol prices are starting to put the pressure on the consumer spending that has been the engine of US economic expansion for the past four years. The gloom was spread across Europe. The pan-European FTSE Eurofirst 300 index of leading shares closed 1.2 per cent down at 1,277.5 points, a two-week low. The 3 per cent drop was the second-worst weekly performance this year after a 4 per cent fall in mid-May.

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