Tensions with Iran reached higher when the world’s fourth-biggest oil producer refused to accept intrusive inspections of its nuclear programme that the West fears could be linked to weapons.

Bullish sentiment was boosted by a warning from Goldman Sachs that oil could reach $150 to $200 a barrel, reinforcing comments made last month by Chakib Khelil, president of Opec.

“It is supply losses that are the key driver at present with the significance of any crude oil production shortfalls heightened by the flow of extremely poor output data from key non-Opec suppliers over the past few weeks,” said Barclays Capital.

Traders’ attention turns to US weekly inventories data. US crude stocks are expected to rise 1.8 million barrels, according to a preliminary poll of analysts by Reuters, helped by a rise in imports.

Gasoline stocks are forecast to fall 100,000 barrels, declining for an eighth week in succession. Nymex June RBOB unleaded gasoline rose six cents to $3.1136 a gallon after hitting a record at $3.1180. Distillate stocks, including heating oil, were forecast to increase by 1.1 million barrels with Nymex June heating oil up 5.8 cents at $3.3637 a gallon.

The fresh rise to above $124 a barrel is a result of strong diesel demand which outweighed signs of rising Opec supplies. Oil rallied late on the strength of middle distillates, including diesel, on growing demand for transport fuel in Europe and power demand in emerging economies.

A recent strike at the UK’s Grangemouth refinery and production problems at the Porvoo refinery diesel unit in Finland have also thinned supplies.

Shortages of alternate fuels in China, South Africa, Latin America and parts of the Middle East have also set off a worldwide boom in demand for diesel for use in electric generators. Further strength came from a US government inventory report that showed US distillate supplies down last week.

Prices fell earlier on news that top oil exporter Saudi Arabia booked eight supertankers to carry 16 million barrels of crude to the United States in May and early June, the highest number of cargoes so far this year.

Opec exports, excluding Angola and Ecuador, are expected to rise 220,000 barrels per day (bpd) in the four weeks to May 24, forecast British Consultancy Oil Movements.

Oil prices have surged five-fold since 2002, as supply struggles to match growing demand in emerging economies, and Goldman Sachs earlier this week forecast prices could rocket to $200 in the next two years. The US investment bank had correctly predicted three years ago that oil would break through $100 — which it did in January.

Gold:

Gold hit a one week high on May 6, after crude oil powered to another record and spurred buying of the precious metal by investors seeking to hedge against inflation.

An increase in gold holdings in the world’s largest exchange-traded fund (ETF) for bullion, Street-TRACKS Gold Shares NYS, suggested investors were putting their money back into gold after a drop to a four-month low a earlier. Gold hit an in-trade high of $881.05 an ounce.

Gold struck a record $1,030.80 an ounce on March 17 but attempts to recapture that level have been met by profit taking. It tumbled to its lowest in four months to $845 an ounce last week after a rebound in the dollar.

Crude oil steadied ahead of US inventory data after hitting a record above $122 a barrel on May 6 due to a weakening dollar, supply concerns and a forecast of oil reaching $200 a barrel within two years.

Gold futures for June delivery on the COMEX division of the New York Mercantile Exchange added $2.0 an ounce to $879.6 an ounce.

In the physical market, steady demand from the electronics sector and a tight supply pushed up premiums for gold bars in Tokyo to 50 US cents an ounce to the spot London prices from 25 cents last week.

Gold sank to a four-month low of $845 on May 2 session as the dollar rallied after the US employment data. A recovery above $850 could prove important for sentiment as this was the historic peak, which lasted from January 1980 until gold breached the $1,000 mark this year.

“Gold prices have been heavily influenced since last August by credit market difficulties and the US Federal Reserve’s attempts to remedy related woes,” said James Steel of HSBC, who noted that central banks were now taking co-ordinated action to deal with the credit crisis. “The latest efforts by the monetary authorities to find a solution may have important ramifications for gold,” Mr. Steel said.

On May 8, in the London market, gold rose, as the dollar changed course to fall from two month highs against the euro after the European Central Banks left interest rates unchanged at four per cent. Gold rose as high as $879.85 an ounce.

“The metal’s short-term direction is still coming from the dollar. Given that oil prices are trading near record highs, inflation concerns are still very much in the forefront of the Market,”

Gold has lost about 15 per cent in value since spiking to a lifetime high of $1,030.80 on March 17, mainly driven by profit taking and declines in other commodities.

But some analysts said the metal would struggle to retain gains and might slip further in coming weeks.

“With our fundamental and technical forex strategists negative euro/dollar and our oil strategist unenthusiastic about the prospects for further gains in crude oil, we continue to favour the downside in gold, targeting $850 in one month and $800 in three months,” UBS Investment Bank said in a report.