(Recasts, updates prices, market activity; new byline, changes
dateline from LONDON)
By Richard Valdmanis
NEW YORK, May 16 (Reuters) - Oil shot to a record high near
$128 a barrel on Friday after Goldman Sachs, the most active
investment bank in energy markets, forecast a continued spike
in prices through the end of the year due to thin supplies.
The rally came as OPEC kingpin Saudi Arabia rebuffed an
appeal from U.S. President George W. Bush for more oil supplies
to ease pressure on the U.S. economy, already hard hit by a
housing slump and credit crunch. []
U.S. crude <CLc1> gained $2.50 to $126.62 a barrel by 1600
GMT after touching a peak of $127.82 earlier in the day. London
Brent rose $2.48 to $125.11.
Oil prices have risen sixfold since 2002 and doubled since
last year as rising demand from China and other developing
nations outpaced new supply.
Goldman Sachs raised its forecast for average oil prices
for the second half of 2008 to $141 a barrel from $107 because
of tight inventories -- a prediction that would require a rapid
run up in current prices to come true.
"I would say the bigger story today is that Goldman upped
their target on average oil prices for the back half of the
year... That's causing oil to run up about $3 today," said
David Katz of Matrix Asset Advisors.
Goldman earlier this month predicted that oil prices could
scale $200 within the next two years.
DIESEL CRUNCH
Diesel has taken center stage in the world energy crunch as
tight power supplies in China, South Africa, Chile, Argentina,
and parts of the Middle East triggered a boom in demand for
middle distillates for electric generators.
Chinese demand for imported diesel is expected to rise even
further in June after this week's deadly earthquake disrupted
gas supplies to major cities and as companies built stockpiles
ahead of the summer Olympics.
"People are looking at diesel. The situation is worse since
the earthquake on Monday in China," said Robert Laughlin at MF
Global.
The boom in diesel consumption added to already robust
demand from the European vehicle fleet, thinning inventories on
both sides of the Atlantic.
Adding support to oil's rally, the Organization of the
Petroleum Exporting Countries (OPEC) has repeatedly said there
is no need to add supply to the market.
Bush arrived on Friday in Saudi Arabia, the world's biggest
oil exporter, where he renewed his appeal for more oil. In
response, Saudi Arabia repeated its pledge that it would pump
as much oil as needed to meet demand but saw no need for a hike
at the moment.
OPEC's smallest producer, Ecuador, offered the first
dissenting view from the group, saying members should consider
raising output because record prices are hurting the poor.
"I think OPEC has to deal with this issue, because this is
hitting all the poorest countries that are oil importers,"
Ecuador's President Rafael Correa told Reuters in the Peruvian
capital, Lima.
The dollar extended losses against the euro on Friday, hurt
by a report showing U.S. consumer confidence tumbled in May to its lowest level in 28 years.[]
The sliding dollar has devalued U.S. financial assets,
prompting investors to move cash to commodities which helped
fuel oil's rally this year.
(Additional reporting by Santosh Menon and Alex Lawler in
London, Felicia Loo in Singapore; Editing by David Gregorio)
