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AP

Oil hits record above $121 on supply woes

Tuesday May 6, 9:58 am ET

By George Jahn, Associated Press Writer

Oil prices rise to record above $121 a barrel on supply worries

VIENNA, Austria (AP) -- Oil futures surpassed $121 a barrel for the first time Tuesday, the spike fueled by worries about threats to supply and a weakening of the U.S. dollar.

The surge in oil prices was also fueled by hopes that the U.S. economy will be spared a sharp downturn after the release of data Monday showing an unexpected expansion in the U.S. service sector in April, analysts said.

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Light, sweet crude for June delivery rose to a record $121.49 a barrel in electronic trading on the New York Mercantile Exchange on Tuesday. The contract later retreated to $121.30 a barrel, up $1.33 from Monday's close.

Crude futures settled on Monday at $119.97 a barrel, up $3.65 from Friday's close.

"The bulls are in control of the market," said Victor Shum, an energy analyst with Purvin & Gertz in Singapore. "The economic report out of the U.S. yesterday on the service sector seems to suggest the economic slowdown may not be as deep as initially thought."

"The sentiment is that the oil pricing is likely going to stay quite strong, with a lot of volatility," Shum said.

Meanwhile, a Goldman Sachs analyst on Tuesday predicted that oil prices could reach $150 to $200 a barrel over the next six months to two years, but said that how far prices could climb still "remains a major uncertainty."

"We believe the current energy crisis may be coming to a head, as the lack of adequate supply growth is becoming apparent," analyst Arjun N. Murti wrote in a client note.

He raised his 2008 prediction for benchmark West Texas Intermediate crude to $108 per barrel from $96, and his 2009 estimate to $110 from $105. He lifted his prediction for 2010 and 2011 to