Oil hits record near $130 as supply fears grow

Energy analysts say an OPEC decision to raise output could help ease the price rally, which they say has been fueled largely by resilient world energy demand even as the United States economy slows.

"Slackening U.S. demand is being offset by brisk offtake in Asian countries, and to a lesser extent in Europe, where the stronger euro is cushioning the price increases," said Edward Meir of MF Global.

Last week's earthquake in China has further tightened up world fuel supplies by boosting demand for diesel to be used in electric generators.

PRICEY OUTLOOK

Investment banks Societe Generale and Credit Suisse raised their oil price forecasts for 2008 Tuesday by $14 to $115 a barrel and by $29 to $120 a barrel, respectively.

Last week, Goldman Sachs predicted oil prices would average $141 in the second half of this year and added that crude prices for delivery far into the future would also likely rise sharply as oil companies have trouble accessing new reserves to feed demand growth.

"This is due to 'the revenge of the old political economy' (resource protectionism), which imposes significant policy constraints on the free flow of capital, labor and technology that are substantially limiting supply growth," Goldman said in a report.

U.S. crude oil prices for delivery in December 2016 settled up $8.40 on Tuesday at $138.38 a barrel.

A weekly report from the U.S. Energy Information Administration to be released Wednesday is expected to show increases in crude and refined products supplies, according to a Reuters poll of analysts.

(Editing by Marguerita Choy)