Oil has hit its highest level since August 2008 and has broken a new record in sterling terms, hitting £74.60 a barrel.
Brent crude has soared to $121.06 a barrel, jumping 2%, on the back of continuing unrest in the Middle East.
Over the last two years sterling has fallen 17% against the dollar and in turn this has driven the oil price to a record high, reports the FT.
The soaring oil price has put further pressure on the ECB to hike interest rates this Thursday, with analyst predicting a token 50 to 75 basis point rise is being priced into the market.
This has resulted in European markets opening cautiously as they await interest rate decisions in Europe and the UK later this week.
The FTSE has opened flat, up 0.03% to 6,014, while the French Cac has risen 0.12% to 4,038 and the German Dax is up 0.06% to 7,171.
Overnight in the US the Dow Jones closed slightly higher, up 0.19% to 12,400, with investors in subdued mode as they wait to see today's release of minutes from the Federal Reserve's rate-setting committee.
The minutes are likely to signal when interest rates are likely to be hiked, and whether the QE2 stimulus programme will continue.
In Asia, the Nikkei slumped 1.06% to 9,616 as uncertainty over the Fukushima Daiichi nuclear plant continued to dent investor confidence
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