Oil prices shot up more than US$11 to a new record above US$139 Friday after Morgan Stanley predicted prices would hit US$150 by July 4, America's independence day.

Oil's meteoric surge, which pushed prices more than eight per cent higher in a single day, added to a huge increase Thursday to cap oil's biggest two-day gain in the history of the New York Mercantile Exchange.

The burst higher - which also came on rising Middle East tensions - also raised the prospect of accelerating inflation by adding to already strained transportation costs.

That gloomy outlook sent stocks tumbling, taking the Dow Jones industrials down more than 300 points.

Light, sweet crude for July delivery jumped as high as US$139.12 on the Nymex, before easing slightly to settle at US$138.54, up US$10.75.

Prices hit a previous record of US$135.09 a barrel on May 22, and settled Thursday at US$127.79.

In London, July Brent crude shot up $7.75 to US$135.30 a barrel on the ICE Futures exchange.

Prices pushed sharply higher Friday after Morgan Stanley analyst Ole Slorer predicted strong demand in Asia could drive prices to US$150 by July 4, when millions of Americans are expected to take to the roads.