Oil just getting silly

 Oil prices surpassed a record $126 per barrel Friday on the eve
of the U.S. driving season as a weakening dollar drove investors to
snap up commodities.
    Light, sweet crude for June delivery rose $2.51 to a new record
of $126.20 a barrel in electronic trading on the New York
Mercantile Exchange by the afternoon in Europe.
    On Thursday, the contract rose to a record close of $123.69 a
barrel.
    In London, Brent crude contracts also hit record highs before
slipping and traded up $2.98 on the day at $125.82 a barrel on the
ICE Futures exchange. Earlier Friday, Brent had reached $125.90
before falling back.
    On Friday, The Wall Street Journal published a report that
suggested closer ties between Venezuelan President Hugo Chavez and
rebels attempting to overthrow Colombia's government, heightening
chances that the U.S. could impose sanctions on one of its biggest
oil suppliers as a state sponsor of terror.
    Chavez has been linked to Colombian rebels previously, but the
paper reported it had reviewed computer files indicating concrete
offers by Venezuela's leader to arm guerillas.
    ``If we put on sanctions I'm sure Chavez would threaten to cut
off our oil supply,'' said Phil Flynn, an analyst at Alaron Trading
Corp. ``Obviously that would have a major impact on oil prices.''
    Even if Chavez cut oil shipments to the U.S., Venezuela would
still pump and sell oil, Flynn said. And much of that oil would
come to the U.S. via middle men, who would buy it from Venezuela
and resell it to the U.S. But that new layer in the supply chain
would bump up costs, he said.
    The European Central Bank also indicated that it was unlikely to
consider interest rate cuts to cool the strong euro against the
slumping dollar.
    By the afternoon in Europe, the euro stood at $1.5444 compared
to $1.5404 in late trading Thursday night in New York. The dollar
was also weaker Friday against the British pound and the Japanese
yen.
    Investors view commodities such as oil as a hedge against
inflation, and some analysts think the dollar's protracted decline
is the main reason behind oil prices doubling from a year ago.
Also, a weaker dollar makes oil cheaper to investors overseas.
    A prediction by analysts at Goldman Sachs seeing oil rising as
high as $150 to $200 a barrel within two years also has boosted
prices.
    Analysts, however, struggled to explain the continued rise of
oil futures after a larger-than-expected buildup of crude oil
stocks reported Wednesday in the United States.
    ``Crude oil is currently held up in a tug-of-war between the
Goldman reality and the physical reality,'' said Olivier Jakob of
Switzerland's Petromatrix in a research note, adding that the
investment bank's prediction made for ``a great story to support
pension funds piling more into commodities.''
    Mark Pervan, senior commodity strategist at ANZ Bank in
Melbourne, Australia, said it may be a combination of continued
wariness over potential supply disruptions as well as prospects for
a strengthening in crude demand heading into the U.S. summer
driving season.
    ``U.S. gasoline stocks have certainly dropped quite sharply over
the last month,'' he said. ``What'll happen in the near term is
that we may likely see an uptick in U.S. refining capacity to
rebuild gasoline stocks and we may see a short-term build in crude
demand as a result.''
    Prices may also be getting a boost from comments Thursday by the
OPEC secretary general.
    Abdalla Salem El-Badri on Thursday said again that oil supplies
are adequate, and that several member countries are having a hard
time finding buyers for their additional supplies.
    In other Nymex trading, June gasoline futures rose 4.04 cents to
$3.1782 a gallon, while heating oil futures rose 7.68 cents to
$3.5866 a gallon. Natural gas futures rose 14.5 cents to $11.408
per 1,000 cubic feet.