OIL PRICES: Another day, another record

 NEW YORK  _ Oil futures blasted to a new record near $123 a
barrel Tuesday, gaining momentum as investors bought on a forecast
of much higher prices and on any news hinting at supply shortages.
Retail gas prices edged lower, but appear poised to rise to new
records of their own in coming weeks.
    A new Goldman Sachs prediction that oil prices could rise to
$150 to $200 within two years seemed to motivate much of Tuesday's
buying, although a falling dollar and increasing concerns about
declining crude production in Mexico and Russia contributed,
analysts say.
    The Energy Department raised its oil and gasoline price
forecasts, but also predicted that high prices will cut demand more
than previously thought.
    Light, sweet crude for June delivery jumped to a new record of
$122.73 a barrel before retreating to settle up $1.87 at $121.84 on
the New York Mercantile Exchange.
    Oil prices have nearly doubled from about $62 a barrel a year
ago, which Goldman sees as a sign that the world is in the midst of
a ``super spike'' in oil prices. Analyst Arjun Murti said in a
research note released Monday that prices would ultimately force
demand to fall sharply.
    Not everyone shares Goldman's view. Tim Evans, an analyst at
Citigroup Inc., countered Goldman's analysis with a note predicting
that crude prices could as easily fall to $40 a barrel as rise to
$200 over the next two years because supplies are, as Evans put it,
comfortable.
    James Cordier, president of Tampa, Fla., trading firms Liberty
Trading Group and OptionSellers.com, said Goldman's prediction
isn't necessarily new: ``We've heard numbers like these out of
Goldman Sachs, especially over the last 12 months.''
    Indeed, it's not the first time Murti has espoused a super spike
theory; in an April 2005 note, he predicted the oil market was in
the early stages of an unprecedented rally that would send prices
from a then-record of about $57 a barrel to $105.
    But some investors respond to such predictions by buying,
Cordier said.
    Meanwhile, in a monthly report, the Energy Department's Energy
Information Administration predicted oil prices will average $110 a
barrel this year, up $9 from last month's forecast. The EIA also
said high prices will cut U.S. demand for petroleum products by
330,000 barrels a day this year; last month, the EIA predicted U.S.
petroleum consumption would fall by 210,000 barrels a day.
    But strong demand for oil from countries such as China, India,
Russia, Brazil and in the Middle East will support high prices and
keep global oil demand growing by about 1.2 million barrels a day
this year, unchanged from last month's forecast, the EIA said.
    A falling dollar on Tuesday also gave traders reason to buy.
Investors often buy commodities such as oil as a hedge against
inflation when the dollar falls, and a weaker greenback makes oil
cheaper to investors overseas. Many analysts feel the dollar's
protracted decline is the real reason oil prices have nearly
doubled since last year.
    Cordier said investors are also increasingly concerned about
falling oil production in Russia and Mexico, which are major oil
producers. And prices are still supported by concerns about supply
disruptions in Nigeria, where production at a Royal Dutch Shell PLC
facility was cut after a weekend attack, and in Iraq, where Kurdish
rebels warned they could launch suicide attacks against American
interests to punish the U.S. for sharing intelligence with Turkey
after Turkey bombed rebel bases in Iraq on Friday.
    At the pump, meanwhile, the national average price of a gallon
of regular gas slipped 0.1 cent overnight to $3.61, according to
AAA and the Oil Price Information Service. Analysts are split over
how high gas will go; while prices have slipped lower since May 1,
leading some analysts to say gas is close to peaking, others
predict the fuel will follow oil's upward surge.
    ``You're going to see new highs for gas prices, probably for the
weekend,'' said Cordier, who predicts an average price of $4 a
gallon in the coming weeks.
    In its report, the EIA said gas prices will peak at a monthly
average of about $3.73 a gallon in June, about 13 cents higher than
its previous forecast.
    In other Nymex trading Tuesday, June gasoline futures rose 5.26
cents to settle at $3.1055 a gallon after earlier setting a new
trading record of $3.126. June heating oil futures rose 4.7 cents
to settle at $3.3535 a gallon after rising to their own trading
record of $3.3712.