UPDATE 5-Oil surges to new highs, dealers focus on diesel

(Recasts, updates details, quotes, changes dateline from LONDON)

By Richard Valdmanis

NEW YORK, May 7 (Reuters) - Oil prices rose more than a dollar
Wednesday to over $123 a barrel, extending further into record
territory as worries over tight world supplies of diesel outweighed
a boost in U.S. crude stocks.

U.S. crude CLc1 leapt $1.49 to $123.33 a barrel by 1:44 p.m.
EDT (1744 GMT) after hitting an all-time peak of $123.56. London
Brent LCOc1 rose $1.84 to $122.15.

Crude prices have doubled in a year and risen six-fold since
2002 on escalating worries over inventories, adding pressure to
consumer economies already hard hit by a housing and credit crunch
and sparking widespread calls for more output from producer group
OPEC.

Wednesday's rally came after a U.S. government report showed a
decline last week in distillate inventories -- which include diesel
and heating oil -- that brought stockpiles in the world's biggest
energy consumer nearly 13 percent below a year ago. [EIA/S]

Power supply tightness in China, South Africa, Chile, Argentina,
and parts of the Middle East have triggered a worldwide boom in
demand for diesel for use in electric generators, adding to robust
demand for use in Europe's passenger vehicle fleet. [ID:nN25293667]

There is a "bullish outlook for diesel," said Societe Generale
in a research note.

U.S. retail diesel prices are running at a record $4.24 a
gallon, about 40 cents higher than gasoline at the pumps.

The report from the Energy Information Administration also
showed an increase in U.S. crude oil stockpiles of 5.7 million
barrels and an increase in gasoline supplies of 800,000 barrels,
tempering the market's gains.

"Traders were trying to comb the EIA data for any bullish
feature and they found it in distillates," Jim Ritterbusch,
president of Ritterbusch & Associates, said.

The advance in crude oil prices to fresh highs came a day after
investment bank Goldman Sachs said oil prices could scale $200 a
barrel in the next two years.

The head of the state run company of OPEC member Libya also said
oil prices would likely rise further amid continued investor
interest in commodities and simmering global political tensions.
[ID:nL07787281]

"I think it will go higher," Shokri Ghanem, head of Libya's
National Oil Corporation, told Reuters in a telephone interview. "It
is the same old story -- speculation and geopolitics."

Traders remained concerned about supply disruptions in Nigeria,
despite the end last week of a strike which halted Exxon Mobil
output in the West African country.

"We all share the concerns over supply issues as Nigerian
production improves but is way off normal capacity and of course
Iran's nuclear debate has resurfaced and will not go away," MF
Global Energy said in a research note.

Concerns over supplies from the world's No. 4 oil producer
resurfaced when Tehran said earlier this week it would refuse
nuclear inspections.
(Additional reporting by Ikuko Kao in London, James Topham in Tokyo
and Gene Ramos in New York; editing by Marguerita Choy)