Oil futures blasted to a new record near $123 a barrel Tuesday, gaining momentum as investors bought on a forecast of much higher prices and on any news hinting at supply shortages.

A new Goldman Sachs prediction that oil prices could rise to US$150 to US$200 within two years seemed to motivate much of Tuesday's buying, although a falling dollar and increasing concerns about declining crude production in Mexico and Russia contributed, analysts say.

The Energy Department raised its oil and gasolene price forecasts, but also predicted that high prices will cut demand more than previously thought.

All of this spells even bigger profits for oil companies already sopping up multibillion-dollar revenues and record profits.

Prices doubled

Oil prices have nearly doubled from about US$62 a barrel a year ago, which Goldman sees as a sign that the world is in the midst of a 'super spike' in oil prices.

Analyst Arjun Murti said in a research note released on Monday that prices would ultimately force demand to fall sharply.

Not everyone shares Goldman's view.

Tim Evans, an analyst at Citigroup Inc, countered Goldman's analysis with a note predicting that crude prices could as easily fall to US$40 a barrel as rise to US$200 over the next two years because supplies are, as Evans put it, comfortable.

Strong demand for oil from countries such as China, India, Russia, Brazil and in the Middle East will support high prices and keep global oil demand growing by about 1.2 million barrels a day this year, unchanged from last month's forecast, the EIA said.

A falling dollar on Tuesday also gave traders reason to buy.

A hedge against inflation

Investors often buy commodities such as oil as a hedge against inflation when the dollar falls, and a weaker greenback makes oil cheaper to investors overseas.

Many analysts feel the dollar's protracted decline is the real reason oil prices have nearly doubled since last year.