Oil surpasses $126 per barrel ahead of US driving season

Investors view commodities such as oil as a hedge against inflation, and some analysts think the dollar's protracted decline is the main reason behind oil prices doubling from a year ago. Also, a weaker dollar makes oil cheaper to investors overseas.

A prediction by analysts at Goldman Sachs seeing oil rising as high as $150 to $200 a barrel within two years also has boosted prices.

Analysts, however, struggled to explain the continued rise of oil futures after a larger-than-expected buildup of crude oil stocks reported Wednesday in the United States.

"Crude oil is currently held up in a tug-of-war between the Goldman reality and the physical reality," said Olivier Jakob of Switzerland's Petromatrix in a research note, adding that the investment bank's prediction made for "a great story to support pension funds piling more into commodities."

Mark Pervan, senior commodity strategist at ANZ Bank in Melbourne, Australia, said it may be a combination of continued wariness over potential supply disruptions as well as prospects for a strengthening in crude demand heading into the U.S. summer driving season.

"U.S. gasoline stocks have certainly dropped quite sharply over the last month," he said. "What'll happen in the near term is that we may likely see an uptick in U.S. refining capacity to rebuild gasoline stocks and we may see a short-term build in crude demand as a result."

Prices may also be getting a boost from comments Thursday by the OPEC secretary general.

Abdalla Salem El-Badri on Thursday said again that oil supplies are adequate, and that several member countries are having a hard time finding buyers for their additional supplies.

In other Nymex trading, June gasoline futures rose 4.04 cents to $3.1782 a gallon, while heating oil futures rose 7.68 cents to $3.5866 a gallon. Natural gas futures rose 14.5 cents to $11.408 per 1,000 cubic feet.

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