There is more bad news for motorists this weekend as they watch the pound signs spin around with ever greater speed on the petrol pumps, or as they gaze gloomily at their rapidly rising gas or electricity bills. Worse is to come. On Friday, oil surged by nearly $11 a barrel to more than $139, another record. The price has doubled in a year and is now nearly 14 times more expensive than a decade ago. No one knows when this latest price boom will end, or at what level.

Not since the oil sheikhs held the world to ransom in the 1970s have we seen a price shock of this magnitude. The Organisation of Petroleum Exporting Countries (Opec) is not blameless: the unwillingness of its members to boost output has contributed to the rise in prices. Leaders of the G8 wealthiest countries will assemble in Japan next month and call on Opec to lift production. On recent form they may as well not bother.

Opec members, particularly Saudi Arabia, used to worry that too sharp a rise in prices would send the global economy into recession, hurting oil demand in the long run. Now they are happy to sell oil at whatever price the market gives them. A massive transfer of international wealth from oil consumers to producers is occurring. While the West is on the ropes, it is boom time in the Gulf.

The real blame for the surge in oil prices, however, lies elsewhere. The investment bank analysts who are tipping a rise to $150 or $200 a barrel by the end of the year will no doubt proclaim their innocence. But it is eerily reminiscent of the dotcom boom, when the beneficiaries of rising prices were the banks themselves and their clients. The same banks pumping up the oil market with their predictions are the biggest traders in so-called energy derivatives.

Nobody knows whether 10%, 20% or 50% of the oil price is accounted for by speculative buying, but the circumstantial evidence suggests a significant effect. The amount invested in commodity index futures has risen from £6 billion to more than £130 billion in five years. Investors are “long” – expecting prices to rise – on hundreds of millions of barrels of oil.

The price rises have meant that demand is falling. In March, US motorists drove about 4% less than a year ago, the first fall in 30 years. Further US oil demand is expected to fall by 300,000 barrels a day this year. Emerging economies are enjoying growth but are taking steps to cut their oil use by removing subsidies. Global growth prospects have been hit hard by the credit crunch. Yet oil prices continue to surge.

It is hard to escape the conclusion that part of the surge, like the sub-prime mortgage crisis that spawned the credit crunch, is due to the actions of the investment banks and hedge funds that drive the markets. Free markets are a good thing, but unfettered financial markets, driven only by the greedy search for return, are generating huge global instability. The markets are supposed to lubricate the workings of the world economy. Instead they are in danger of bringing it down.