How much does a barrel of oil cost?

Oil prices went above $65 (£36) a barrel for the first time yesterday, notching up yet another record. Prices have jumped by more than 100% in the past year and a half and are now well over the $22-$28 target range set by the Opec oil cartel.

What are US light and Brent crude?

There are the two benchmarks for world oil prices. One is the futures contract - an agreement for future delivery at a specified time, place and price - for US light crude. The contract is widely used as the benchmark for determining crude oil and refined product prices in the US and abroad. Brent crude oil is a North Sea crude widely used to determine crude oil prices in Europe as well as other parts of the world. Together, the light crude oil futures contract and Brent crude are used as the basis for virtually every physical crude oil transaction.

Why have oil prices risen?

Strong economic growth in the US - which consumes a quarter of the world's petrol - and Asia, particularly in China, has been putting pressure on prices. World oil demand grew at its strongest pace in 30 years last year. Opec is pumping oil pretty much at full capacity.

What about political factors?

With oil suppliers at full stretch, any hint of political instability in the Middle East easily unsettles the market. The latest worry is Iran, Opec's second biggest producer after Saudi Arabia. Traders worry that the row between the west and Iran over its determination to restart nuclear processes could lead to sanctions that might disrupt oil supplies. Tension in Saudi Arabia, where Britain and Australia this week warned of attacks from militants, is another political worry.

Are there any other big problems?

Refining capacity has been one of the biggest pressures on oil prices. Oil from the ground has to be refined before it can be used, but there is a shortage of refineries. To make matters worse, US refineries have been plagued by stoppages or accidents. An explosion at the BP plant in Texas City, near Houston, in March killed 15 people. Some traders blame such problems on ageing plants that are having difficulty maintaining output at high levels. Industry officials say these snags are common for this time of year, when plants run hard to meet peak gasoline demand.

What has been the economic impact?

Advanced economies have soaked up high oil prices remarkably well, with inflation well under wraps. Britain's inflation is running at 2%, whereas it jumped to more than 20% during the oil price shocks in the 70s.

Why the minimal impact?

This is partly because western economies use oil less intensively and more efficiently than in the past and so are better able to absorb higher oil prices. Also important is that the current rise in oil prices is driven by strong demand rather than an interruption to Middle East oil supplies, as happened in 1974 and 1979. Oil prices in 1979 hit $80 a barrel in the equivalent of today's money, well above the $65 a barrel level.

Does this mean we can relax?

Not quite. The rule of thumb is that a $5 increase in the price of oil sustained over a one-year period lops 0.3% off global growth, according to the International Monetary Fund. Moreover, the three global recessions in the past 30 years were all preceded by a sharp rise in oil prices.

How high will prices go?

Back in April, the investment bank Goldman Sachs made waves when it warned that the oil market was in the early stages of a "super spike" that could push prices as high as $105 a barrel. But Vince Cable, the Liberal Democrat Treasury spokesman and a former economist at Shell, dismissed talk of $100 a barrel as alarmist. He says high oil prices will lead to increased production and exploration, thereby improving supply, and to falling demand, as consuming economies slow in the face of higher energy costs. Market estimates suggest that oil prices will remain at current levels for the next few years, although some oil experts believe there is roughly a one in 20 chance that oil prices will be $100 or higher in a year's time.

How much is the price of petrol?

Motorists in the UK are now paying 90p a litre on average. In the US, they have also reached record but are still at prices Europeans can only dream of - $2.35 a gallon, equivalent to about 34p a litre.

Is the world running out of oil?

Major oil reserves are becoming harder to find and more expensive to exploit. Many of the fields outside Opec countries are mature, which means that finds are now smaller. They need more costly technology to develop and they fall faster from peak production. Some experts though, such as Professor Peter Odell of Erasmus University in Rotterdam, think there are plenty of reserves left and that the world is running into oil rather than out of it.