(Agencies)
Updated: 2008-05-07 10:03

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.

A customer pumps gas at a Shell gas station in Cambridge, Massachusetts April 29, 2008. Oil futures blasted to a new record near $123 a barrel Tuesday. [Agencies]

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, Florida, 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 US demand for petroleum products by 330,000 barrels a day this year; last month, the EIA predicted US petroleum consumption would fall by 210,000 barrels a day.

But strong demand for oil from countries such as 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.

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