Oil prices rose to a record $127.43 Friday morning amid new concerns about supply and after Goldman Sachs increased its forecast to $141 per barrel for the second half of 2008.

Goldman upped its forecast by 32%, saying oil prices will average $141 in 2008 and $148 in 2009, citing supply constraints and the lack of scalable substitutes, Bloomberg News reported Friday.

Oil surged on the news before easing back to $127.33. The other major energy commodities also jumped in early Friday trading. Heating oil added 5 cents to $3.67 per gallon, unleaded gasoline jumped 6 cents to $3.22 per gallon, and natural gas climbed 13 cents to $11.53 per million BTUs.

Economist Glen Langan told BloggingStocks Friday that Goldman Sachs' increasingly bullish outlook for oil is not good news for consumers or the U.S. economy.

"This is the first time that I can recall that a major investment bank has mentioned the supply dimension to oil. Up to now, we've been talking about emerging market demand, but if in fact supply will not increase at modern-day historical rates, this is not a good sign for U.S. GDP growth," Langan said. "We're counting on ample supply growth to contain these already high oil prices."

Langan said he expects oil production to grow at least 1.5-2% per year, while Goldman sees it at 1% per year. "If Goldman is correct, prices will rise to over $140 per barrel in the quarters ahead this year, and probably higher, that would put the average price of gasoline in U.S. easily over $4.25 per gallon," he said.

An economic slowdown in the United States and other industrial nations will continue to damper oil consumption growth, the International Energy Agency announced Tuesday, as it again trimmed its global oil demand estimate for 2008.

The IEA lowered its forecast for 2008 global oil demand by another 390,000 barrels to 86.8 million barrels per day from about 87.2 million barrels, the association announced in its latest monthly report. At the same time, the IEA revised its analysis of 2007 oil usage, saying the world used about 85.8 million barrels per day last year.

Oil traded $1.50 higher to $125.70 per barrel in Tuesday afternoon trading. Oil hit an all-time high of $126.98 in electronic trading earlier in the day and has risen about 100% in the past 12 months.

I know that last thing you probably wanted to hear this morning was that oil prices moved even higher, but that is exactly what is taking place, as oil rose as high as $125.98 and is currently trading at $125.60.

Leading the charge today is the weak dollar as investors continue to seek refuge from the falling U.S. currency in commodities -- most notably, oil. The dollar has fallen today against the euro, the British pound, and the Japanese yen. The euro was sitting at $1.5404 last night, but has moved higher today, up to a current price of $1.5466.

The market is also concerned about the upcoming peak driving season for Americans. With the season getting under way, oil prices will definitely continue to rise, and if gasoline stockpiles continue to fall, you can be sure that gasoline prices are also going to keep moving higher over the next couple of months. Will we see national averages of $4 or greater? I don't think so, but at the current rate prices are moving, nothing is out of the question right now.

An OPEC official said Friday the cartel may meet to boost output ahead of its September 2008 meeting if crude oil prices keep rising, Reuters reported Friday.

"If the price keeps going up, OPEC may consult on an increase in production before it meets in September," the OPEC source told Reuters Friday, speaking on condition that he not be identified. He added that the increase "would have to be more than 500,000 barrels per day" to have an impact.

Oil Friday hit another record high, increasing $2.20 to $126.20 per barrel Friday morning, before easing back to $125.25, on concern about production in Nigeria amid civil unrest, and on emerging market oil demand growth, particularly in China and India. Further, institutional investor demand for oil as an asset class is also contributing to oil's record rise, many analysts agree.

'Two years, $75 late'

Economist Glen Langan told BloggingStocks Friday talk of a potential OPEC action on production is two years too late. "OPEC is two years, $75 late, I'm sorry to say," Langan said. "OPEC knew for two years that higher production was needed to help meet unprecedented emerging market demand, but they failed to act in the interests of the global economy."

As serious as the oil issue is in the United States, the west, and globally, considering its impact on economic development, circumstances could become even more challenging, in the quarters ahead, if present trends continue.

That's because, due to emerging market growth and per capita energy consumption rates in the United States - the oil -producing world "could be in a position of unprecedented pricing power," according to economist Glen Langan.

Langan says "could be" because the pricing power oil producers currently have, while significant, is not absolute. And oil-consuming nations still have time to regain some control over their oil bills. Oil Thursday reached a record high of $123.74 per barrel before closing slightly lower.

Here's the current global oil supply / demand landscape, as Langan sees it: daily global oil supply exceeds demand by the smallest of margins. It's the major reason the price of oil has been trending up for more than 5 years, but oil-consuming nations can increase that margin, via conservation, increased efficiency, and alternative sources of energy.

American motorists, already stung by an 80% increase in gasoline prices in the past year, sense that $5 per gallon is ahead, and they may be (regrettably) right.

A CNN/Opinion Research Corp. poll found that 94% of respondents expect to pay $4 per gallon this year, and 78% expect to pay as much as $5, CNNMoney reported Tuesday.

The national average currently is $3.62 per gallon as tracked by the Lundberg Survey, Bloomberg News reported. Many higher-cost areas of the United States -- including New York, San Francisco, Los Angeles, and Boston -- are already experiencing prices over $4 per gallon.

Further, traders and analysts say seasonal, structural, and geopolitical factors are likely to push gasoline considerably higher in the weeks ahead -- with gasoline's upward arc lasting months, if the price of oil continues to rise.

Primary culprit: Rising oil prices

The biggest factor in gasoline's rise is the price of oil, which Tuesday topped $122 per barrel in NYMEX trading for the first time in its history. Oil is up more than 100% since 2006. In November 2001, oil traded at about $17 per barrel. Moreover, because the crude component accounts for more than 60% of the price of a gallon of gasoline, refiners have passed that added cost onto consumers.

Oil surged more than $3 to break through the $120 level Monday on concern a rebel attack in Nigeria would disrupt that country's production, Bloomberg News reported.

The markets were also rattled by a New York Times report indicating that Iran has apparently rejected the west's latest package of incentives to end its nuclear program.

Oil rose $3.86 to a record $120.21 per barrel, before drifting back slightly to $119.75 on Monday at mid-day.

The other major energy commodities also rose substantially Monday morning. Heating oil jumped 9 cents to $3.31 per gallon, unleaded gasoline surged 7 cents to $3.04 per gallon, and natural gas rose 36 cents to $11.13 per million BTUs.

Among the many variables business executives, policy makers, and economists are watching as the United States attempts to jump-start its slow growth / no growth economy, is the ability of oil's price to moderate in the quarters ahead.

Further, oil's failure, to date, to fall below $110 per barrel despite three straight months of declining U.S. gasoline consumption and sluggish economic growth has caused oil watchers to re-examine their premises regarding projected oil prices for 2008-2012.

The oil market, circa May 2008

Over the past decade, the world has encountered both a tripling of oil prices and the start of the $100 per barrel oil era, driven largely by increasing demand for oil in emerging markets, particularly in the giga-GDP growth nations of China and India. Further, one 'dampening assumption' during oil's recent climb to record heights has been that the price of oil would fall as the U.S. economy approached a recession, and as global growth slowed.

Oil fell for the third straight day Thursday and neared the psychologically-significant $110 level, as data confirming a sluggish U.S. economy and the rising dollar reduced investors' demand for oil as an alternative investment.

Oil, which had traded as low as $110.80, closed down 96 cents to $112.50 per barrel. Oil hit a record high of $119.90 per barrel on April 22, 2008.

The other major energy commodities also closed substantially lower Thursday. Heating oil closed down about 6 cents to $3.10 per gallon, unleaded gasoline closed down 5 cents to $2.85 per gallon, and natural gas closed down about 25 cents to $10.59 per million BTUs.

Oil fell more than $3 Tuesday after BP restarted a North Sea oil pipeline, even as OPEC warned that oil could hit $200 per barrel.

Oil closed down $3.14 to $115.61 per barrel, its biggest one-day decline since March 31, 2008 after BP plc (ADR) (NYSE: BP) said its Forties Pipeline System was back in operation, Bloomberg News reported Tuesday.

A rise in the dollar Tuesday also took some pressure off oil. The dollar rose about 1 cent to $1.5565 versus the euro on sentiment that the U.S. Federal Reserve may end its interest rate cutting cycle soon. Because oil is priced in dollars, it tends to rise when the dollar falls (and vice versa), as producers and traders bid-up the price to maintain purchasing power.

The three things that do the most to push up oil are weakness in the dollar, the dynamics of supply and demand, and natural disasters or manmade disturbances in the pumping of crude. Add to that, if OPEC is right, rampant and wide-spread speculation by traders.

The supply of crude out of the UK has been, for the time being, interrupted by a strike. According to Reuters, the strike over pensions began at a Grangemouth refinery in Scotland, operated by BP (NYSE: BP).

The strike raises the issue of whether Western governments should allow workers in oil fields and on pipelines to strike at all. The availability of oil and the huge jump in price to $120 makes a strong case for calling it a "strategic asset." The term has been applied to crude for many years, but it did not mean much when prices were lower and there was, at least from the standpoint of perception, ample supply.

The government of the U.S. needs to intervene and send the strikers back to work, or replace them, if necessary. Oil at $120 has as much chance of wreaking the economy as the credit crisis. The U.S., Europe, and Japan can only handle the pressure of so much commodity inflation. At some point, fighting inflation will become more important than cutting interest rates. Then, even Solomon will not be able to decide what to do.

Douglas A. McIntyre is an editor at 247wallst.com.

OPEC Monday rejected calls from the United Kingdom and Japan to increase production, and reiterated that the oil markets are well-supplied, Bloomberg News reported.

Oil briefly rose to a new high at $117.60 per barrel Monday morning. However, it should be noted that oil spiked higher on a report of a possible Nigeria oil flow disruption due to a damage oil pipe, Reuters said. Oil soon gave back its gains to trade 10 cents lower at $116.59.

OPEC Secretary-General Abadalla el-Badri said in Rome that there is no shortage of oil, and blamed the record-high plus-$115 per barrel oil prices on the weak dollar and speculators, according to Bloomberg.

Because oil is priced in dollars, oil tends to rise when the dollar falls, as producers / traders bid the price up in an effort to preserve dollar-denominated purchasing power.

Despite robust oil demand growth in emerging markets, particularly in China and India, OPEC has repeatedly argued that the weak dollar, driven by the U.S. trade deficit and federal budget deficit, and 'speculators' seeking a return on equity via short-term trade profits, are primarily responsible for oil's record rise. However, OPEC has never stated what percentage they think these factors account for in the present oil price.

Large emerging market countries will use more crude oil than the US for the first time ever. According to Bloomberg, "China, India, Russia and the Middle East for the first time will consume more crude oil than the U.S., burning 20.67 million barrels a day this year."

While OPEC says that higher oil prices are the result of a weak dollar and speculation, that viewpoint is clearly wrong. Demand for oil is moving up and moving up quickly. At the same time there is evidence that supply may drop. Saudi Arabia has indicated that it will soon stop investing in more oil production facilities. The Wall Street Journal says that "After 2009, the kingdom is putting a brake on new projects, because it fears rising output and consumption of biofuels and other non-fossil fuels will erode crude-oil demand."

Anyone who believes the Saudi excuse for cutting investment is a oil production is a fool. By dropping capital expenditures on new facilities, the country can increase the tens of billions of dollars in profits it makes on $116 oil.

The war between consuming nations and producing nations is entering a new and more dangerous phase. Oil needs to rise 30% to hit $150. Based on the price increase over the last year, that number is not beyond the realm of possibility. Nor is the idea that gas prices could top $5 a gallon.

Oil. More consumption and less supply. Ugly results.

Douglas A. McIntyre is an editor at 247wallst.com.

On an almost weekly basis, OPEC makes its case that increasing oil production will not bring down the price of crude. And, almost every week oil consuming countries see the statements as self-serving. While the members of the cartel bring in tens of billions of dollars with oil hitting $116, there is absolutely no economic incentive for them to pump on additional drop of the black gold.

Bloomberg reports that OPEC's chief says, "Any increase in production now will not have an impact on prices because there is a balance between supply and demand." The statement is laughable on the face of it. While speculation in price and a falling dollar have contributed to some of the rise in crude, so has demand from countries like China and India. Demand has also not fallen in the U.S., Europe, and Japan, which have traditionally been the largest markets of oil.

Unfortunately, consuming nations have very little leverage with OPEC. The U.S. does offer military security to many Arab states in the Middle East, but it does not seem to be willing to use that as a bargaining chip.

Too bad.

Douglas A. McIntyre is an editor at 247wallst.com.

In a report that surprised many sector watchers, Russian oil production fell for the first time in a decade, based on year-over-year basis The Wall Street Journal reported Tuesday (Subscription required).

Russia, the world's second biggest exporter of oil after Saudi Arabia, averaged production of 10 million barrels per day during the first three months of this year -- a 1% drop in production when compared to the same period in 2007, The Associated Press reported Tuesday, citing International Energy Agency data.

Aging infrastructure or aging fields?

Analysts, oil industry executive, and economists will now begin the painstaking process of determining the exact cause of the production shortage. Russia has suffered from electricity shortages and poor weather conditions in oil production zones during the past year. In addition, despite Russia's impressive, 5-year economic boom and related development -- an economic expansion driven to a considerable degree by Russia's oil revenue -- the nation's oil infrastructure remains inadequate and in need of up to $50 billion in improvements and upgrades.

Independent energy trader Jim Dietz said if the current production drop stems from weather problems or infrastructure deficiencies, the oil market will largely overlook the decline, as a temporary dip.