Oil holds near peak $126.20; no one willing to sell into sharp record rally

LONDON (Thomson Financial) - Oil held near a record $126.20 ahead of the weekend with no-one willing to sell into a rally that has little sign of easing as the market heads into the U.S. driving season in late May.

Prices have rallied for over a week to a series of record highs, the latest spike due to Goldman Sachs analysts this week, who predicted prices will rise as high as $150 to $200 a barrel within two years. That forecast has driven much of oil's gains in recent days, as well as a tight supply outlook and some rising demand.

At 4.14 p.m., New York-traded West Texas Intermediate crude for June delivery was up $1.19 to $124.88 a barrel.

In London, Brent crude for June delivery was up $1.45 to $124.29 a barrel, having touched a record $125.90 earlier.

Sucden analyst Michael Davies said that there was "keen interest in the oil market by the (investment) funds, which are currently being attracted by oil's rapid price appreciation this year.

"This probably explains the move higher over the last few days," he added.

Unrest in key producer Nigeria and other ongoing supply worries also helped the surge.

The price of oil has soared by 25 percent since the start of 2008 and has doubled since the same stage last year -- when it stood at about 62 dollars.

Oil vaulted above the psychological 100-dollar mark last January and has since jumped above 110 and 120 dollars, as the market was also energised by the weak dollar and solid demand from Asian powerhouse economies China and India.

Prices continued to bolt higher on Thursday after the OPEC cartel insisted the market was well-supplied and driven by speculators.

OPEC Secretary General Abdalla Salem El-Badri said on Thursday that there was no shortage of crude, brushing aside U.S. calls for higher output to dampen runaway prices.

"There is clearly no shortage of oil in the market," El-Badri said in a statement.

The 13-member Organisation of the Petroleum Exporting Countries (OPEC) produces about 40 percent of the world's oil, with current output at about 32 million barrels per day.

El-Badri also maintained OPEC's stance that oil-market volatility has been driven by financial market developments and the increased flow of speculative funds into oil futures.

"The turmoil in some global equity markets and the considerable depreciation in the U.S. dollar have encouraged investors to seek better returns in commodities, particularly in the crude oil futures market. This has driven prices higher," he added.

However, analyst Kevin Norrish at Barclays Capital argued that the recent strengthening of the dollar did not support El-Badri's argument.

"Given that the U.S. dollar has marginally strengthened against the euro over the past week, while (New York crude) prices have risen by 9.0 percent to reach all-time high prices, there appears to be little evidence to support his comment," Norrish said.

The European single currency traded under at 1.5441 dollars on Friday, which was far from the record high 1.6019 that was struck on April 22.

A weaker U.S. unit tends to encourage demand for dollar-priced commodities because it encourages demand from foreign buyers. A stronger dollar, meanwhile, has the opposite effect.

[e-mail] as/rw COPYRIGHT Copyright Thomson Financial News Limited 2008. All rights reserved.

The copying, republication or redistribution of Thomson Financial News Content, including by framing or similar means, is expressly prohibited without the prior written consent of Thomson Financial News.