Oil: After hitting $126, is $150 far behind?

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NEW YORK (CNNMoney.com) -- Oil leaped into uncharted territory Friday, soaring past the $126-a-barrel mark for the first time, and leaving analysts and investors wondering how high the price will go.

U.S. light crude futures for June delivery hit an intraday record $126.20 in electronic trading, and set a settlement mark at $125.96. That was $2.27 above Thursday's prior record close of $123.69 a barrel.

Continued concerns about supply, particularly from Venezuela in the face of reports that President Hugo Chavez's support of Colombian rebels could threaten the flow of oil to the United States.

The price of a barrel of crude oil has more than doubled in the past year. On May 9, 2007, the active contract settled at $61.55 a barrel.

And if oil has doubled in the past year, what has to happen for oil to hit $150 a barrel?

"This rally has really blown a lot of people's minds," said Andrew Lebow, energy broker at MF Global (MF). "You talk about $150 even a few weeks ago and people say you are a lunatic."

But a Goldman Sachs (GS, Fortune 500) report released Tuesday suggested that the price of crude oil could reach as high as $150 to $200 a barrel.

While the high price of oil has kept demand limited in the U.S., demand in developing counties such as India and China has been surging, supporting the spiking price of crude.

China had a very cold winter, and so the United States exported a lot of distillate oil, which is used to make home heating fuel and diesel fuel, to the region.

"This is truly a global market," said Phil Flynn, senior market analyst at Alaron Trading in Chicago, who said the U.S. also exported heating oil to Japan and Europe.

For oil to hit $150 a barrel, "demand would have to continue as it is abroad," said Lebow.

Crude oil prices have also been supported on supply struggles, and it would take a complete supply break to push oil over $150, according to analysts.

There are lots of factors affecting oil supplies - and the perceptions of them -as of late.

Nigeria is one of the key suppliers of high quality crude oil to the U.S., but battling rebel factions have caused supply disruptions.

Inclement weather in the Gulf of Mexico in recent weeks caused supply deliveries to slow. Heavy fog blanketing the Houston Shipping Channel slowed ships from making oil deliveries to Texas.

Flynn mentioned threats from other geopolitical hotspots - in particular, Venezuela and Iran - neither of which have good current relations with the United States, keeping the price of oil high.

But to get oil over $150 a barrel, it might take a geo-political upset or a natural disaster. If developments in a country such as Venezuela or Nigeria caused supplies of oil to be completely cut off to the United States, Lebow said that oil could break that $150 threshold.

Experts say investors buy commodities as a hedge against inflation, and so when the economy shows signs of weakness, investors purchase oil to protect the value of their money.

"It seems that oil is the perfect hedge for any situation right now," said Flynn.

The market is pushing forward in leaps because of its momentum, said Flynn. "Right now, the market seems to be moving in $5 increments. They tried to back off of $120, they couldn't," he said.

Oil prices have been marching consistently higher as the dollar has been declining. Crude oil is bought and sold in American dollars around the globe, so the weakening of the American dollar causes the price of oil to increase.

The Goldman Sachs report that forecasts $150-$200 oil also says that predicting the price of oil in the future "remains a major uncertainty."

Flynn said there is no way to know what crude oil will cost a year from now. "Sure it is possible, and it is probable" that oil prices will hit $150-$200, Flynn admits.

"But that doesn't mean that we will go straight up overnight. This market could be hit hard at any time," adding that crude prices can come back down as quickly as they went up.

"What goes up could come down," he said. "We could be at the top today, but we won't know that for sure" until the market proves it.

The price of crude oil will drop below $100 a barrel by the end of the year, according to a majority of oil and gas executives surveyed by the advisory firm KPMG Global Energy Institute.

"People are open to anything. Anything could happen in this market - and it probably will," said Lebow.