NEW YORK (CNNMoney.com) -- Oil prices shot up nearly $11 a barrel and settled Friday at a record $138.54 on geopolitical jitters, a dollar decline and a forecast that oil would hit $150 by July 4.

Friday's spike in the July contract for light crude on the New York Mercantile Exchange marks the largest single-day increase in oil prices on record. The contract hit an intraday record of $139.12, breaking the previous trading record of $135.09.

"The bulls are running rampant and the bears have panicked," said oil industry analyst Stephen Schork, editor of the Schork Report. "It's pure hysteria, absolute panic," he added.

The rally highlighted concerns that retail gas prices, which have surged near a nationwide average of $4 a gallon, will continue to crimp consumer spending and fuel inflation.

Stocks fell more than 400 points Friday due to the rally in crude prices and a report from the Labor Department that showed the unemployment rate rose to 5.5% in May from 5% in April, the biggest monthly jump in more than two decades. The economy lost 49,000 jobs, marking the fifth straight month of job losses.

Meanwhile, the dollar continued its slide versus the euro on the weak jobs report and comments Thursday that the European Central Bank could potentially raise interest rates. The dollar also tanked versus the yen.

Concerns about instability in the Middle East flared after hawkish comments from Israeli Deputy Prime Minister, Shaul Mofaz, about possible attacks on Iran.

Also contributing to the surge: Morgan Stanley (MS, Fortune 500) analyst Ole Slorer released a report saying that he expected a "short-term spike in oil prices," as high as $150 a barrel by July 4.

Softening dollar

The dollar began its slide Thursday after European Central Bank president Jean-Claude Trichet said the bank might raise interest rates, which would strengthening the value of the euro. If the euro gains, oil becomes cheaper, European investors buy more oil, raising the price of oil in U.S. dollars, according to Phil Flynn, senior market analyst at Alaron Trading.

The "European Central Bank pulled the rug out from under us," said Flynn.

Trichet's comments came the day after Federal Reserve Chairman Ben Bernanke said he wanted to try to support the dollar to bring energy prices into check. "The two central banks are out of step with each other," he said.

Global demand, especially for gas and distillates in emerging markets, supported the record build in crude prices.

However, the governments of a number of countries, such as India and Malaysia, have started lifting their government fuel subsidies, prompting gas prices to rise in those nations.

Iran risk premium

Deputy Prime Minister Shaul Mofaz told Yediot Ahronot, Israel's largest mass-circulation daily that "If Iran continues its program to develop nuclear weapons, we will attack it."

Mofaz's comments mean the return of the "Iran risk premium," said analyst Antoine Halff in a research report released Friday.

While the market's reaction "seems overplayed," Halff said, the minister's remarks remind traders that "the dispute over Iran's nuclear program remains unresolved and that the risks of military confrontation are indeed increasing."

"This will likely be a growing source of market volatility until a solution to the dispute is found," he added.

Pain at the pump

Gas prices have risen to record levels on the back of record oil prices. The price of crude has more than doubled in the past year.

AAA reported Friday that the national average price for a gallon of regular unleaded gasoline fell to $3.986, down 0.3 cent from the previous day's record high of $3.989. Prices at the pump had hit records for 28 of the past 29 days before Friday.

Consumers should expect gas prices to stay at high levels, adding as much as a nickel or a dime in the next couple of weeks, if oil prices continue to march higher, said Flynn.

The AAA survey shows gas prices are up more than 10% from a month ago and more than 27% higher from year-ago levels.

A government supply report released Wednesday said that gasoline demand slackened over the week including Memorial Day, showing that consumers have cut back on their driving in the face of record high gas prices.

The average price for gas has passed the $4 a gallon mark in 12 states, as well as in Washington, D.C. Those states where gas has already passed the $4 include Alaska, California, Connecticut, Hawaii, Illinois, Michigan, Nevada, New York, Oregon, Rhode Island, Washington, and West Virginia.

The most expensive state for buying gas is California, where a gallon of regular unleaded costs an average of $4.398 according to AAA. The second most expensive state is Alaska, where a gallon of gas costs $4.299.

The least expensive state for purchasing gas is South Carolina, where a gallon costs $3.787 a gallon on average. The second least expensive state for gas is Missouri, where a gallon runs $3.788 a gallon.