Oil rockets to record $122 on supply worry

By Matthew Robinson

NEW YORK (Reuters) - Oil shot to a record above $122 a barrel on Tuesday on supply worries and the weak dollar, extending a rally that has doubled prices over the past year and has some experts forecasting a potential spike to $200.

U.S. crude settled up $1.87 at $121.84 a barrel after touching a record $122.73 earlier. London Brent crude gained $2.32 to $120.31 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 (are pushing up crude)," John Kilduff, senior vice president at MF Goldman, wrote in a research note.

High oil prices have hit U.S. 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.