HOUSTON -- Oil's meteoric rise to nearly $120 a barrel looks like more than just another economic bubble -- growing demand and tighter supplies are likely to keep prices high. Some analysts say even $200 a barrel would not be unthinkable.
Light, sweet crude for June delivery closed at $116.32 on the New York Mercantile Exchange Friday but speculators drove crude futures to nearly $120 earlier in the week. That price surge -- pushing crude to nearly double its level of a year ago -- has some key components of a classic bubble, when market prices climb far above their intrinsic value. The burst comes when investors realize the assets are overvalued.
But growing worldwide thirst for crude, in large part from the rapidly developing economies of China and India, means U.S. consumers probably won't get much relief.
''We can do our homework, but prices are going to go where they want to go at this point,'' said Jeff Spittel, an analyst at investment bank Natixis Bleichroeder.
Americans who hoped to ride out temporarily high prices by carpooling or driving less may have to make those habits permanent. And because of the premium prices, oil companies may be willing to search out more oil in places they previously couldn't afford to explore.
The Organization of Petroleum Exporting Countries -- which supplies about 40 percent of the world's crude -- insists it's supplying more than enough oil.
Instead, many observers blame speculative traders for bidding up the price as a hedge against inflation and as protection from the sinking U.S. dollar. Some see that as evidence of a bubble.
It's also becoming harder and more expensive for oil companies to find and tap new petroleum reserves -- a troublesome scenario given forecasts that the world's energy needs will rise by more than 50 percent in the next two decades.
Toss in the weak dollar and political instability in some oil-producing countries, and it seems unlikely that oil will fall below $100 a barrel anytime soon, if ever.
Widely watched oil price prognosticator Goldman Sachs has said oil could average $110 a barrel by 2010, up from a previous forecast of $80, and that a spike as high as $200 a barrel is possible in case of a major supply disruption.
Supply is at the heart of soaring prices, said John Moroney, a Texas A&M economics professor who just finished a book on energy production and consumption. He cites production declines in Mexico, an unstable oil industry in Venezuela and possible shrinking production capacity in the Middle East.
''I don't buy the bubble theory,'' he said.
Many analysts believe the weakness of the dollar is a bigger factor than supply and demand because a soft dollar sends investors worried about inflation into commodities such as oil and gold. One of the reasons oil prices edged down a bit later in the week was the dollar rose to its highest level against the euro in five weeks.
A weak dollar makes commodities less expensive for buyers operating in other currencies. Some market-watchers say oil will probably keep rising until demand falls off, which they describe as the market's way of finding fair value for the commodity. For oil, some estimate that price as low as $60 or $70 a barrel.
''The fundamentals don't justify anywhere near these prices, even when you factor in geopolitical problems,'' said Michael Lynch, president of Strategic Energy & Economic Research in Cambridge, Mass.
He expects prices to fall as low as $80 this year and perhaps as low as $50 in the next three or four years as more global supply comes on line.
Demand already has begun to wane in the U.S., where fuel prices are causing turmoil in an economy already saddled with recession fears, a housing and credit crisis, and dismal retail sales.
Drivers have begun to cut back on gasoline consumption.
Some people have taken to riding bikes to work or organizing car pools. The sale of gas-electric hybrid vehicles is up. Larger trucks and sport utility vehicles are selling slowly.
It's unclear how much a drop in oil prices could reduce gasoline prices. The prices do not always move together because they are subject to separate supply and demand forces.
While oil prices have risen 80 percent in a year, gas prices climbed only 24 percent.
Meanwhile, the major oil companies have been reporting robust earnings for the first three months of the year. ConocoPhillips said it earned more than $4 billion, up 17 percent from a year ago, and Exxon Mobil Corp. reported a profit of $10.9 billion, the second-biggest U.S. quarterly profit ever, last week.
The smaller Marathon Oil said its profit rose 2 percent to $731 million, well ahead of Wall Street forecasts, and Chevron, the nation's No. 2 oil company, had its most profitable first quarter in history with earnings of $5.17 billion.
Sen. Charles Schumer, D-N.Y., who has proposed a windfall-profits tax on oil companies, issued a statement Thursday after Exxon announced its earnings, saying: 'Once again, consumers' pain is Exxon's gain. Oil companies are wracking up obscene profits left and right while American families are stretched to the limit by skyrocketing gas prices. It's high time for Big Oil to pay its fair share.''
The higher prices have allowed companies to extract oil from sources, such as the Canadian oil sands and deep-water sites in the Gulf of Mexico, that were too expensive to tap only a few years ago, said Gary Adams, who heads the U.S. oil and gas practice for Deloitte & Touche USA. He expects the price of oil to settle at around $90 to $100 a barrel in the coming months.
AP business writer John Wilen in New York and Miami Herald staff contributed to this report.
