With oil setting yet another record high Friday of $127.43 per barrel and Goldman Sachs renewing traders concerns about inadequate oil supply growth, economists and business executives are becoming increasingly concerned about gasoline prices in the quarters ahead.

U.S. gasoline prices are already up more than 100% since 2004 to a national average of about $3.78-3.83 per gallon. (Many high-cost zones, such as New York, Boston, San Francisco, and Los Angeles, are already experiencing prices well over $4 per gallon.) By any gauge, gasoline's surge is one for the record books - - rapidly approaching percentage increases registered during the first two oil shocks, in 1973-74 and 1979-80.

Given the run-up, how much higher can gasoline prices rise?

First, some may ask, why the emphasis on gasoline prices? In a nutshell, economists obsess over gasoline prices because, unlike the rest of the developed world, the United States has out-sized per capita energy consumption. That's econospeak for 'Americans use many more gallons of fuel to commute to work, do errands, etc. than their counterparts in Europe and around the world.'

U.S. consumer confidence in May 2008 plunged to its lowest level in almost 28 years, an indication American adults are very concerned about the near-term health of the U.S. economy as it slides into its first recession in six years.

The Reuters/University of Michigan Surveys of Consumers said its index of confidence fell to 59.5 in May 2008, Reuters reported Friday.

It was the index's lowest reading since June 1980 -- a period also characterized by high oil/gasoline prices and a sluggish U.S. economy.

Economists surveyed by Bloomberg News had predicted that the April 2008 index would fall to 62.5. The index stood at 63.2 in April 2008 and 69.5 in March 2008.

'An awful number'

Economist Peter Dawson told BloggingStocks Friday May's consumer sentiment reading reflects conditions on the ground. "It's an awful number, but it reflects conditions on Main Street, as the typical person experiences them," Dawson said. "We've got falling home prices, record-high gas prices, rising food prices, property taxes increasing in many areas, and no job growth. It's not a happy time for Americans right now and the University of Michigan sentiment numbers reflect that."

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.

Oil is treading water at a near-record $125 per barrel after a U.S. Energy Information Administration report indicated that weekly crude oil inventories rose a considerably smaller-than-expected 200,000 barrels. Economists surveyed by Bloomberg News had expected crude oil inventories to increase by 2.25 million barrels last week.

Gasoline supplies fell 1.7 million barrels.

The modest increase in oil inventories had little affect on oil prices, for the moment. Oil was down 87 cents to $124.93 per barrel in Wednesday morning trading. The other major energy commodities were also virtually unchanged. Unleaded gasoline fell 1 cent to $3.18 per gallon. Heating fell about 2 cents to $3.66 per gallon. Natural gas gained 10 cents to $11.52 per million BTUs.

Meanwhile, refineries operated at 86.6% of capacity for the week ended May 9, 2008, the EIA report indicated, up from 85.0% in the week ended May 2, 2008.

A bright spot: Refinery utilization

Independent energy trader Jim Dietz told BloggingStocks Wednesday the increase in refinery utilization was the report's lone bright spot.

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.

Oil is treading water -- for now -- at a near-record $122 per barrel Wednesday, after a U.S. Energy Information Administration report indicated that weekly crude oil inventories rose a larger than expected 5.7 million barrels.

Economists surveyed by Bloomberg News had expected crude oil inventories to increase by 1.63 million barrels last week. Also, gasoline supplies rose by 800,000 barrels.

Oil idles near $122

The larger than expected increase in oil inventories put a brake on oil prices, for the moment. Oil rose just 30 cents to $122.14 per barrel in Wednesday morning trading. The other major energy commodities were also virtually unchanged. Unleaded gasoline gained 1 cent to $3.11 per gallon. Heating oil rose about 2 cents to $3.37 per gallon. Natural gas gain 2 cents to $11.15 per million BTUs.

The record run of oil, already up a gaudy 400% since 2000, continues, with prices breaking through $122 per barrel on Tuesday, May 6, 2008.

Meanwhile, gasoline prices, up about 20% in the past six months alone, and about 100% in the past four years, show few signs of moderating in the months ahead.

It's the era of high oil/energy prices, and until a readily-available, affordable energy substitute is found and/or oil prices decline, the oil / oil services sector will be in demand, which bodes well for Occidental Petroleum Corporation (NYSE: OXY).

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.

Global oil demand, despite oil being more than $100 per barrel, remains solid. Further, there are increasing signs that the aforementioned international demand is likely to keep oil's price at lofty levels, even with a U.S. recession. That's bad news if you buy gasoline or oil, but good news if you own shares of Transocean.

Transocean (NYSE: RIG) offers deepwater drilling services in the world's major offshore oil-producing regions, including Africa, Asia, Brazil, Canada, India, Middle East, Gulf of Mexico, and the North Sea.

In general, analysts see RIG generating an 18%-25% total return on equity for 2008-2009, with an upside possible, given the company's strong position in deepwater drilling, which offers a higher return potential than shallow water drilling. And currently, it looks like a 2008 revenue upside is in sight for Transocean,

Further, given a capacity shortage sector-wide for deepwater rigs, dayrates have increased substantially, and look for RIG's pricing power to continue into 2009 (RIG's dayrate for 2009 is now $600,000 for high-spec, ultra-deepwater rigs). Prospects for Transocean's jackup rig market are not as bright, with a possible oversupply in early 2009. The Reuters F2008/F2009 EPS consensus estimates for are $14.15/$16.82.

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.

Crude oil fell below $114 Wednesday after a U.S. Energy Information Administration report (pdf) indicated weekly oil inventories rose more than double forecast.

U.S. oil inventories increased 3.8 million barrels for the week ending April, 25, 2008. Economists surveyed by Bloomberg News had expected a 1.9 million barrel increase.

Oil fell $1.78 to $113.85 per barrel Wednesday at mid-day, after trading above $116 earlier in the session. The other major energy commodities also fell at mid-day. Heating oil declined about 3 cents to $3.21 per gallon, unleaded gasoline fell 2 cents to $2.92 per gallon, and natural gas declined dropped about 9 cents to $10.76 per million BTUs.