Oil sets record near $128; pump price at high, too

And buy they did Friday. The price for a barrel of benchmark light, sweet crude for June delivery jumped $2.17 to settle at record close of $126.29 on the New York Mercantile Exchange. Earlier in the session, prices surged to $127.82 a barrel, also a new high.

It was the eighth time in the past 10 sessions traders rewrote the record books, and the first time prices topped $127 a barrel.

Investors shrugged off the news from Saudi Oil Minister Ali al-Naimi that the world's largest oil producer had decided to increase production last week. The market also had little reaction to the Energy Department's announcement said it would cancel shipments into the Strategic Petroleum Reserve for six months beginning July 1.

"It's ridiculous because I don't think this is going to bring the price down," said Phil Flynn, an analyst at Alaron Trading Corp., of the Energy Department's move.

The effect of Saudi Arabia's decision was also not clear. The increase, which went into effect last Saturday, is relatively small, lifting total output from the world's leading producer to 9.45 million barrels per day by June.

The addition of "300,000 barrels won't make a lot of difference," said Mir Yousufuddin, who monitors crude prices for the U.S. Energy Information Administration.

The announcement came during a visit by Bush, who was in the kingdom to appeal for a more significant increase in production. Bernard Picchi, an energy analyst at research firm Wall Street Access, called the increase "a token amount" and said the effect on prices would have been different if Saudi Arabia had boosted production by 1 million or 1.5 million barrels a day.

Saudi Arabia often adjusts its output to meet demand, and the increase coincides with the start of the peak driving season in the U.S. The Middle Eastern nation has in the past acknowledged the ability to produce as much as 11 million barrels a day.

James Cordier, president of Liberty Trading Group in Tampa, Fla., agreed that the moves by both the U.S. and Saudi Arabia were "insignificant" and would do little to dent the rally in oil prices. Like a number of other analysts, he believes prices are rising not because of a speculative bubble, but simply reflect finite supply and soaring global demand.

Crude's latest surge comes a week before the Memorial Day holiday, the traditional start of the summer driving season, suggesting that retail gas prices still have further to rise. Motorists are now paying a national average of $3.787 a gallon for regular gasoline, up nearly a penny from the previous day, according to AAA and the Oil Price Information Service.