Oil hits record near $128, Saudi raises output

By Richard Valdmanis

NEW YORK (Reuters) - Oil shot to a record high near $128 a barrel on Friday after Goldman Sachs, the most active investment bank in energy markets, forecast a continued spike in prices through the end of the year due to thin supplies.

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

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

U.S. crude gained $1.87 to $125.99 a barrel by 1700 GMT after touching a peak of $127.82 earlier in the day. London Brent rose $2.07 to $124.70.

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.

Goldman Sachs raised its forecast for average oil prices for the second half of 2008 to $141 a barrel from $107 because of tight 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.