Oil rockets past $122

US crude surged $1.80 to $121.77 a barrel by 2:03 p.m. EDT (7:03 p.m. British time) after touching a record $122.73 earlier. London Brent crude gained $2.22 to $120.21 a barrel, after hitting a record $120.99.

Rising tensions with Iran, after the world’s No. 4 oil producer refused to accept inspections of its nuclear program that the West fears could be linked to weapons, stirred supply concerns from the OPEC nation. Nigerian disruptions from militant attacks and a strike have also underpinned prices since late April, adding to gains that have sent prices for oil up about six-fold since 2002 as part of a wider commodity surge.

Growing demand from emerging markets like China has supported the oil rally, as supplies struggle to keep pace, with further strength for dollar-denominated commodities coming from the slumping greenback. “Demand from China and India, the falling dollar making oil an inflation hedge, speculation, OPEC supply restraints, supply threats in Iran, Iraq and Nigeria and refinery bottlenecks in the United States (is pushing up crude),” John Kilduff, senior vice president at MF Goldman, wrote in a research note.

High oil prices have hit US refiners’ profit margins, prompting some to trim runs, but stoking supply concerns as the world’s biggest oil consumer heads into the summer driving season. Speculators have also poured cash into commodities as a hedge against inflation since September. The mounting supply problems and strong demand from emerging economies prompted Goldman Sachs to forecast oil could reach $200 a barrel within the next two years. “We believe the current energy crisis may be coming to a head, as a lack of adequate supply growth is becoming apparent,” Goldman said in the note. “In our view, a gradual rally in prices is likely to be longer lasting than a sharp, sudden spike.”

US President George W. Bush is expected to talk with officials from OPEC kingpin Saudi Arabia about the effects of high fuel prices on the US economy on his trip to the world’s top exporter later this month. Bush has called on the Organization of the Petroleum Exporting Countries to raise output to help bring down prices, but the cartel has blamed high prices on speculators and insist markets are well supplied.

Rising costs as well as wider problems with the economy have hurt US fuel demand, with the US Energy Information Administration cutting its forecast for US demand by 90,000 barrels per day (bpd) in the Q2 and 100,000 bpd in the Q3. A weekly US government report on fuel inventories due out Wednesday is expected to show a 1.8 million-barrel build in crude stocks, a 1.1 million-barrel rise in distillate inventories and a 100,000-barrel fall in gasoline stocks, according to a Reuters poll. (Reuters)