World oil prices jumped to a fresh record of almost $128 a barrel yesterday on the back of a weaker dollar, fears over a shortage of diesel and a bullish price prediction from Goldman Sachs.
Goldman, which for some years has predicted that oil prices would rise strongly, raised its forecast for oil prices to an average of $141 a barrel in the second half of the year, up from $107.
"Tight supply conditions continue to be the primary catalyst for higher crude prices. The near-term outlook for oil prices continues to be bullish," it said.
US light crude futures climbed by more than $3 barrel to a peak of $127.82 while Brent rose a similar amount to $125.79.
Chinese demand for imported diesel is expected to rise sharply in June after this week's earthquake disrupted gas supplies to major cities and as companies build stockpiles ahead of the summer Olympics.
Robert Laughlin at MF Global said: "People are looking at diesel. The situation is worse since the earthquake on Monday in China. Demand is robust as there are so many recovery processes going on."
Oil prices are also being pushed up by the long-running fall in the value of the dollar, in which crude is priced. The dollar continued to fall today after weak industrial output data on Thursday. Investors have been drawn to the oil markets as a hedge against the falling greenback.
Oil prices are up more than a quarter so far this year and more than sixfold in the past eight years and has fuelled the debate about whether there is enough oil in the ground to meet the growing demand.
President George Bush landed in Saudi Arabia yesterday to renew his appeal to the world's biggest producer for help to tame record oil prices although the Saudis blame speculators rather than fundamentals for the high oil price.
NVDL: The Saudi's need to cry wolf (blaming speculators) as it is in there interest to placate the market. Demand destruction isn't good for them either, so they have to convince, calm and assure their buyers, which effectively perpetuates the myth that this is a temporary swing based on hype. It's not, but it will take a while longer for people to see the light. I still have my fingers crossed for when an oil price makes front page headlines around the world. How long that takes is an indictment of both our and the media's collective stupidity.