Arab nations are angry at the tepid US response to the crisis in the West Bank and have hinted at using oil as a weapon against both Israel and the US. Iran yesterday said it would join an Arab oil embargo while its former nemesis, Iraq, also hinted at similar action.

There is a palpable fear amongst traders that the violence in the occupied territories could spread further unrest in the Middle East, which is home to two-thirds of the world's petroleum reserves.

As in the past, most analysts feel the spike in oil prices are temporary due to significant excess capacity and the willingness of non-OPEC nations such as Russia to pump up production.

At home, the soaring oil price saw BHP Billiton share price increase 6 cents to $11.66. Every $US1 a barrel a rise in the oil price adds $66 million to BHPB's bottom, analysts said. While Woodside fell 1c to $14.76 Santos gained 4c to finish at $5.85.