At the New York Mercantile Exchange, September crude jumped more than US$1.40 to hit US$48.70 a barrel, the highest level in 21 years of NYMEX crude oil trading. The market has set records in 14 of the last 15 trading days.

The rise comes as rebel Iraqi cleric Moqtada al-Sadr refused a peace accord and vowed to keep fighting in the city of Najaf despite continued Iraqi and US government threats of attack on his stronghold.

The fighting has also restricted the flow of oil through the country’s main southern pipeline, halving exports to one million barrels per day.

Witnesses have also reported attacks on the headquarters of Iraq's South Oil Co. and a domestic oil pipeline near Iraq's northern Kirkuk fields.

OPEC claimed during the week that it has two million barrels of spare capacity although a decision on increasing quotas will not be made until its next meeting in September.