NEW YORK — Oil futures blasted to a new record over $122 a barrel today, 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 today's buying, although a falling dollar and increasing concerns about declining crude production in Mexico and Russia contributed, analysts say.
Light, sweet crude for June delivery jumped to a new record of $122.47 a barrel before retreating slightly to trade up $1.29 at $122.26 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, 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 Liberty Trading Group and OptionSellers.com in Tampa, Fla., 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.
A falling dollar today 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 both major oil producers. And prices are still supported by the concerns about supply disruptions in Nigeria and northern Iraq that first drove crude past $120 a barrel on Monday. Militant attacks in Nigeria over the weekend cut some production at a Royal Dutch Shell facility. In Iraq, 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.