Oil sets record near $128; pump price at high, too

Diesel prices also have risen to record levels, meaning that even Americans who don't drive will likely face even higher prices on all sorts of goods because of increased shipping costs. A gallon of diesel now sells for $4.482 a gallon.

Oil prices could rise even higher as U.S. demand picks up during the summer months, when gasoline consumption is typically the heaviest. Traders are clearly betting gasoline prices have a way to go too: Gasoline futures jumped to a record $3.2438 a gallon on the Nymex before easing slightly to settle at $3.2235, up 5.777 cents.

In other Nymex trading, heating oil futures rose 8.04 cents to settle at $3.7028 a gallon. Natural gas futures fell 30.5 cents to settle at $11.094 per 1,000 cubic feet.

In London, July Brent crude surged $2.36 to settle at $124.99 a barrel on the ICE Futures exchange.

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Associated Press Writers H. Josef Hebert in Washington and Jennifer Loven in Riyadh, Saudi Arabia, contributed to this report.