Crude oil rose above $127 a barrel for the first time, leading other commodities higher, after Goldman Sachs Group Inc. raised its forecast on speculation Chinese diesel purchases will strain supplies.
Goldman boosted its price outlook for the second half of this year to $141 a barrel, from $107, citing supply constraints. China may increase fuel imports to generate power after a May 12 earthquake. Oil and other commodities, such as gold and platinum, also surged on the falling dollar.
"We can blame Goldman again," said Nauman Barakat, senior vice president of global energy futures at Macquarie Futures USA Inc. in New York. "In March 2005 they predicted that prices would rise dramatically, and they did. Prices jumped to the $125 level after another Goldman report less than two weeks ago. At this point nobody wants to bet against Goldman."
Crude oil for June delivery rose $3.13, or 2.5 percent, to $127.25 a barrel at 9:20 a.m. on the New York Mercantile Exchange. The contract surged to $127.82 today, the highest since trading began in 1983. Prices have doubled in the past year.
Brent crude oil for July settlement rose $3.26, or 2.7 percent, to $125.89 a barrel on London's ICE Futures Europe exchange. The contract touched a record $126.34 today.
Goldman Sachs analyst Arjun N. Murti wrote in a report on May 6 that "the possibility of $150-$200 per barrel seems increasingly likely over the next six-24 months." Murti first wrote of a "super spike" in March 2005, predicting crude may trade between $50 and $105 a barrel through 2009.
"This is a market that wants to go higher and does on any bit of news," said Rick Mueller, director of oil practice at Energy Security Analysis Inc. in Wakefield, Massachusetts. Problems with coal distribution in China, caused by the earthquake, "will increase gasoil demand, but the amounts aren't huge."
PetroChina International Co., the trading unit of PetroChina Co., the country's biggest oil producer, has already purchased 400,000 tons, or 2.9 million barrels, of diesel for June. That's in addition to the 200,000 tons that China International United Petroleum & Chemicals Corp., the nation's largest trader, bought for the month.
"People are really focused on China right now," said Christopher Edmonds, the managing principal of FIG Partners Energy Research & Capital Group in Atlanta. "When a market moves on such minute data points, it is usually near some sort of inflection point. I think once we move from the June to July contact and we get evidence of weak Memorial Day demand, the market will become more rational."
The June contract on the Nymex expires May 20.
President George W. Bush will ask Saudi Arabia to increase oil production to help lower prices during a visit to Riyadh this weekend, White House spokeswoman Dana Perino told reporters traveling on Air Force One.