The oil price has soared about 40% this year, posing a significant strain on economies around the world and triggering social unrest and protests from India to Spain.

And many banks have increased their forecasts with predictions that prices could reach $200 a barrel by 2010.

Russian firm Gazprom, the world’s biggest supplier of natural gas, expects oil to reach $250 a barrel in the "foreseeable future".

The US energy markets watchdog, the Commodity Futures Trading Commission, said it has joined together with the Federal Reserve, the US Treasury Department and other agencies to investigate what is causing the dramatic price movements and to make sure that the market is not being manipulated.

Dollar strength

One of the major factors behind the ferocious rise in the oil price since the beginning of the year has been the slumping dollar as US interest rates were slashed to prevent the world’s largest economy from tipping into a recession.

This prompted investors to switch their money into commodities, including oil, which were seen as more likely to rise in value because of rising demand in fast-growing emerging economies, including China.

The rebound in the dollar came after Federal Reserve Chairman Ben Bernanke said risks to economic growth had faded.

The remarks led traders to bet that US rates could rise, lifting the dollar.

When interest rates are higher, investors get a better income from the country’s currency and vice versa.

With Mr Bernanke confident that the worst of the downturn is now over, the dollar regained some strength against major currencies, including the yen and the euro.

"Crude is down basically as the dollar is taking off, after Bernanke’s remarks, which sparked some profit-taking," said Phil Flynn at Alaron Trading in Chicago.

‘Tricky situation’

Earlier, oil prices had jumped more than $3 after a report by the International Energy Agency (IEA) cut expectations of supply growth in oil producing countries.

While the IEA also cut expectations for demand growth amid a slowdown in the global economy, analysts considered that the problem of supply constraints offset the expectations of falling demand.

There are fears that further attacks in Nigeria, the world’s eighth largest exporter, and political problems in other key-oil producers, including Iran and Iraq, could also suppress supply.

"It’s a tricky situation because supply is falling as fast as demand is," said Francisco Blanch of Merrill Lynch.