Oil nears $123 on $200 oil prediction

NEW YORK (AP) ‘ 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 yesterday’s buying.

The Energy Department raised its oil and gasoline price forecasts, but also predicted 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.

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.

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.

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.

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.