US crude shot to a record high near $128 on Friday after Goldman Sachs, the most active investment bank in energy markets, raised sharply its forecast for prices, Reuters reported.
US crude (WTI) hit a peak of $127.82 and was trading at $127.30, up $3.18, by 1513 GMT. Brent was $3.16 higher at $125.79.
Goldman Sachs raised its forecast for average oil prices for the second half of the year to $141 a barrel from its previous forecast of $107.
"I would say the bigger story today is that Goldman upped their target on average oil prices for the back half of the year. That's causing oil to run up about $3 today," said David Katz of Matrix Asset Advisors.
Record high oil prices have helped to drive strength across the energy complex, especially for diesel, driven by strong global demand.
Gas oil, which includes heating oil and diesel, was trading at $1,208 a tonne, just off a record hit earlier in the week.
Chinese demand for imported diesel is expected to rise in June after this week's deadly earthquake disrupted gas supplies to major cities and as companies build stockpiles ahead of the summer Olympics.
"People are looking at diesel. The situation is worse since the earthquake on Monday in China," said Robert Laughlin at MF Global.
The Organisation of Petroleum Exporting Countries (Opec) has repeatedly said high oil prices have been driven by factors other than supply and demand. Saudi oil minister Ali Al Naimi reiterated on Thursday prices had more to do with financial market volatility than fundamentals.
But US President George W. Bush arrived yesterday in Saudi Arabia, the world's biggest oil exporter, where he renewed his appeal for more oil. In response, Saudi Arabia repeated its pledge that it would pump as much oil as needed to meet demand but added this was unlikely to lead to any drop in fuel prices.
Opec's smallest producer Ecuador said the group should consider raising output because record prices are hurting poor nations.