Crude hits new record above $126, then falls back

Retail gas prices, meanwhile, rose to another record above $3.70 a gallon, again following crude's recent path higher.

Oil futures have set new records for six straight sessions, driven by a weaker U.S. dollar and growing concerns about declining crude production in Mexico, Russia and elsewhere, analysts say. Goldman Sachs said in a report last week that crude prices could rise to $150 to $200 within two years.

"What's really circulating now is the possibility that world oil production has peaked. There's an idea that we can't change supply but we can change demand, and the only way to do that is to rally the market higher," said James Cordier, founder of OptionSellers.com, a Tampa, Fla., trading firm.

Light, sweet crude for June delivery jumped to a new record of $126.40 a barrel on the New York Mercantile Exchange before falling back to $124.50, down $1.19. The contract first rose above $126 on Friday, and many analysts said they expected the market to ease some.

"It looks like we're seeing a little bit of a correction. We put in the highs last week so we're seeing some profit-taking," said Tom Bentz, analyst at BNP Paribas Commodity Futures in New York.

Also pressuring oil slightly were concerns that a massive earthquake Monday in central China may temporarily slow demand. The 7.8-magnitude quake killed more than 7,600 people, toppled buildings and knocked out power lines.

"We know that some power and electricity plants are off-line, so that could have a negative impact on demand," said Phil Flynn, analyst at Alaron Trading Corp. in Chicago. "But obviously the market is still showing strength so it has a lot of bounce in it."

Oil's surge is pushing retail gas prices higher. The national average price of a gallon of regular gas rose 1.1 cents overnight to a record $3.718 a gallon according to a survey of stations by AAA and the Oil Price Information Service. The Energy Department expects prices to peak at a monthly average of $3.73 in June, though many analysts say national average prices could rise as high as $4. Consumers in many regions, including parts of California and Hawaii, are already paying that much.

Demand for diesel fuel is also growing worldwide, but supplies of distillates, which include diesel and heating oil, fell unexpectedly earlier this month. That's pushing U.S. diesel prices to record highs and inflating heating oil prices in the futures market; heating oil futures are often viewed as a proxy for diesel.