One problem is that it is unclear just how big a role speculative buying is playing in the price rise, which has been so dramatic it defies explanation in traditional economic terms.

'If you look at it rationally, underlying fundamentals and demand cannot change on a day-to-day basis and cause such price swings,' said CIMB-GK economist Song Seng Wun.

Oil set a new high late last night as it shot past US$132 a barrel, heading ever nearer to the economically irrational US$140 that some analysts are forecasting.

Action Economics economist David Cohen said: 'Quite possibly, it is overdone based on fundamentals.'

He feels that for oil prices to have taken off as rapidly as they have done, people must be betting on energy prices.

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He said: 'I wouldn't be surprised if it goes towards US$140 a barrel. It could become a self-fulfilling prophecy.'

Shaky stock markets around the world and the lack of alternative investment classes offering good returns have prompted investors to put their cash into commodity and energy assets as these sectors boom.

The weak greenback also makes it cheaper to invest in dollar-denominated commodities.

OCBC economist Selena Ling said: 'Financial demand for commodities as an asset class has grown tremendously, and that has helped fuel oil prices.'

The spot price of oil traded as high as US$129.60 a barrel in New York on Tuesday, while oil futures reached US$139.50 a barrel as investors rushed to buy crude futures contracts, fearing a medium-term supply shortage.

But economists maintain that neither speculative nor investment activity is the main culprit behind the sky-high prices. They say the issue is more one of tight demand and limited supply. Further supply disruptions or natural disasters could aggravate prices.

Mr Cohen noted that 'so many things feed on each other, it's hard to say' when the bursting point would come.

'Look at strong underlying demand from China - that's not smoke and mirrors,' he noted. 'There's just not much excess capacity right now in the face of strong demand.'

Barring another severe supply disruption, CIMB's Mr Song is maintaining his assumption of oil at US$110 to US$120 a barrel by the end of the year and for next year, while Ms Ling is looking at prices dropping to US$90 a barrel a year from now.

Household and consumers around the world are already feeling the pinch of higher energy prices, although Singapore consumers have been partly cushioned by a strong local currency.

However, higher oil prices have seeped into electricity bills, transport costs and operating costs for businesses in Singapore.

In terms of electricity tariffs, there could be more increases to come, said Ms Ling.

The turning point will come when the high oil prices become unsustainable and derail the expanding global economy, which in turn will dampen crude prices, say the experts.

In Singapore, all eyes will be on consumer price index data due out tomorrow. Economists expect some moderation in headline inflation as the effects of the goods and services tax hike last July wear off.

yanghw@sph.com.sg