Oil hits record as Saudi hike fails to stem rally

By Richard Valdmanis

NEW YORK (Reuters) - Oil shot to a record high near $128 a barrel on Friday as a bullish price forecast from investment bank Goldman Sachs drowned out an offer of more supply from OPEC kingpin Saudi Arabia.

U.S. crude settled up $2.17 at $126.29 a barrel after touching a peak of $127.82 earlier in the day. London Brent rose $2.36 to $124.99.

Oil prices have risen six-fold since 2002 and doubled since last year as rising demand from China and other developing nations cinched spare production capacity, adding pressure on the U.S. economy already hard hit by a housing slump.

Goldman Sachs, the most active investment bank in energy markets, said Friday that oil prices will average $141 a barrel in the second half of this year due to paper-thin inventories -- a prediction that would require a rapid run-up in current prices to come true.

"I would say the bigger story today is that Goldman upped their target on average oil prices for the back half of the year," said David Katz of Matrix Asset Advisors.

Goldman earlier this month predicted that oil prices could scale $200 within the next two years.

Under pressure from consumer nations hard-hit by the rally, OPEC kingpin Saudi Arabia said Friday it agreed to boost output by 3.3 percent, or 300,000 barrels per day, to loosen up the market and make up for declines in other OPEC nations.

The announcement came as President George W. Bush visited Riyadh for the second time this year to appeal for more oil to ease pressure on the U.S. economy already slowed by a housing slump and credit crisis.