The price of crude oil has topped $45 a barrel - touching a record 21-year high of $45.04 in New York trade.
Less oil means raw materials and fuel will cost more
The cost of crude has been hovering around record-breaking peaks after unrest in Iraq halted production.
At the close of trade, US crude eased back to $44.52. In London, Brent crude closed down at $41.27 a barrel.
Companies such as British Airways are feeling the effect of higher fuel and raw material costs, while there are worries that consumers may spend less.
Tuesday's price rise was also the result of the closure of some production in the Gulf of Mexico by Shell, ahead of a feared storm.
Petrol price warning
The rise also resulted in a warning for UK motorists to expect price increases at the petrol pump.
Petrol has already risen by about 2p a litre over the past 10 days to an average of 81.7p a litre, Ray Holloway of the Petrol Retailers Association said.
WHY PRICES HAVE RISEN
Producers pump flat-out, leaving little spare capacity
Fears about consequences of any supply disruption rise
Speculators bet on higher prices, helping propel prices further
Violence in Iraq and threat to future of Russian oil giant Yukos add to tensions
He added he expected "modest" increases to feed through to the pumps in August, pushing up the price of unleaded by around 1p a litre, while diesel could increase by 2p to 3p a litre.
The AA and RAC agreed with the prediction, with the RAC warning that it expected gradual rises of "a penny here, a penny there" over the next two months.
The latest rise in crude prices was sparked by disruptions to Iraqi oil exports.
Renewed unrest in Iraq has spooked the oil market
Iraq controls the second-biggest proven oil reserves in the world after Saudi Arabia.
On Monday, officials shut down oil fields in the south of the country after threats of sabotage from fighters loyal to the Shia cleric Moqtada Sadr.
The southern fields supply the main terminal at Basra, which handles about 90% of Iraq's oil exports.
However, the Associated Press reported on Tuesday that production was set to resume after Iraqi authorities reached an agreement with militant groups.
There are a number of other concerns weighing on the market.
In Russia, there are fears that Yukos, which accounts for about 2% of world output, may be forced to suspend production because of a dispute with the Russian government over a multi-billion dollar tax bill.
The upcoming presidential referendum in Venezuela is also seen as a potential source of disruption for global supplies.
OIL PRICE PEAK
Monday's $44.99 barrel price is the highest in 21 years of Nymex oil futures trading
The 2004 average price has now reached $35 a barrel
This will take half a percentage point off global economic growth, say economists
The country is the world's fifth-largest producer and political instability and anti-government strikes there prompted a jump in oil prices in 2002.
According to James Menendez, the BBC's correspondent in Caracas, the Venezuelan government says it will guarantee oil exports and prevent violence regardless of who wins next Sunday's vote on President Hugo Chavez.
Vice President Jose Vicente Rangel told a meeting of foreign diplomats that more than 100,000 troops would be deployed during and after the vote.
Tony Nunan, who trades petroleum for Mitsubishi, warned that oil prices could rise to $50 a barrel if supply problems persist.
However, in real terms, stripping out inflation, oil prices remain lower than the highs reached in 1979 during the Iranian revolution.
During that period the price of crude oil averaged $80 a barrel in today's money.