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Crude oil futures reached $111 a barrel on Friday, a rise fueled in part by the dollar's decline and in part by "tight stockpiles of middle distillates like heating oil, diesel, and jet fuel in the midst of extensive refinery maintenance in the United States and Europe," Reuters reported.[1] -- But Thomson Financial reported that "crude's recent gains appear to be detached from market fundamentals," since "[a] U.S. recession should see demand growth slow, while rising crude inventories point to decent supplies heading into the second quarter, when crude usage is generally at its lowest."[2] -- "Oil and gasoline are being played more as a hedge against the dollar and has [sic] little regard for supply and demand," according to one trader. -- This disconnect is one reason that OPEC has "decided to hold production quotas steady, despite pressure from the U.S." -- Goldman Sachs predicted further rises are ahead, however: "Goldman Sachs analysts have argued that booming demand from developing nations, increased resource nationalism, and decades of underinvestment in commodities has created an environment where prices can continue to rise despite a slowing economy. -- 'The most recent rise in commodity prices is simply the extension of the structural bull rally in commodities that is now in its ninth year, and the fact that the rally continues in the midst of an economic slowdown simply serves to highlight the fact that this bull rally is structural, not cyclical,' analysts at Goldman's said, warning that prices will probably remain at higher levels until significant investment increases production capacity to a level capable of meeting future demand projections. -- 'Solving the politically driven supply constraints will be a very difficult and protracted process which will likely lead to explosive prices in the next couple of years, with oil prices potentially spiking toward 175 usd a barrel, particularly should growth in the G7 re-accelerate in 2009 and beyond.'" ...

NEW YORK -- Oil slipped on Friday as investors took profits from a record rally this week to $111 a barrel, but losses were tempered by a late-season surge in heating oil.

"Distillate supplies are tight, and this is causing a squeeze in heating oil futures," said Phil Flynn, an analyst at Alaron Trading in Chicago.

U.S. crude settled down 12 cents to $110.12 a barrel in volatile trade after touching a record for the seventh time in a row the previous session. London Brent settled up 1 cent to $107.55 after touching a record of $108.02 earlier in the session.

Crude oil prices have jumped about 15 percent so far this year in part because of a steep decline in the the U.S. dollar -- a factor that has supported the nominal value of all commodities priced in the currency.

Oil analysts have said they expect oil's inverse relationship with the dollar to last until there are significant signs that underlying commodities demand is eroding because of the U.S. economic slowdown.

Meanwhile, tight stockpiles of middle distillates like heating oil, diesel, and jet fuel in the midst of extensive refinery maintenance in the United States and Europe are also underpinning energy markets.

Heating oil futures touched a record $3.2220 a gallon before settling at $3.1465, up 2.17 cents. Gas oil futures, the benchmark for European diesel, heating oil and jet fuel prices, hit a fresh record of $1,000.50 a ton.

U.S. heating oil distributors are asking the U.S. government release stockpiles from the Northeast emergency reserve amid high retail prices and low regional inventories, a source said.

The U.S. Department of Energy declined to comment on whether they would grant the request.

Adding support to energy markets, the Organization of the Petroleum Exporting Countries again shrugged off calls for more supply. OPEC said on Friday it was pumping more than enough crude to keep consumers satisfied and a potential U.S. recession could mean lower demand for its crude.

OPEC, in its monthly oil market report, said there was little risk of a rise in oil demand growth forecasts given the slowing economy of the world's top fuel consumer.

(Reporting by Richard Valdmanis in New York and Margaret Orgill in London; Editing by Marguerita Choy)

LONDON -- Oil fell by around a dollar as end of week profit-taking and concerns over the health of crude's recent rally knocked the top off yesterday's record price.

At 4.00 pm, New York's WTI crude for April delivery was down 87 cents at 109.46 usd per barrel, having yesterday traded to a new all-time high of 111.00 usd.

In London, Brent crude for April delivery was down 84 cents at 106.70 usd per barrel, having yesterday touched 107.88 usd, its highest ever price.

Crude prices have spiked to a series of record highs in recent sessions, as investors poured into oil in a bid to guard against historic dollar weakness. But with the U.S. economy possibly already in recession, and economic fears heightened today by news Bear Stearns has had to seek emergency funding, crude's recent gains appear to be detached from market fundamentals.

A U.S. recession should see demand growth slow, while rising crude inventories point to decent supplies heading into the second quarter, when crude usage is generally at its lowest.

'Oil prices are treading in dangerous territory as oil and gasoline are being played more as a hedge against the dollar and has little regard for supply and demand,' said Alaron trader Phil Flynn in Chicago.

But while prices have eased today, few investors are confident of calling a top on the market, despite an unsupportive fundamental backdrop. The dollar has tanked to another record low against the euro, possibly encouraging more hedging activity in crude next week, while also making prices cheaper for overseas investors.

MF Global analyst Ed Meir said: 'With the sinking dollar providing support, the path of least resistance seems to be higher still,' though he warned that markets could be dangerously overbought, with the risk of a sharp decline in prices not to be ruled out.

OPEC, the producer's cartel responsible for some 40 pct of global oil supplies, today revised its monthly estimation for U.S. economic growth down, but kept its oil demand figures largely unchanged at 87 mln bpd for 2008.

Last week, the group decided to hold production quotas steady, despite pressure from the US to increase output to help cool record prices.

While OPEC is not due to meet again until September, the cartel said it would, 'continue to closely monitor ongoing market developments and as always stand ready to take the necessary measures in line with their commitment to market stability and ensuring adequate supplies.'

OPEC has consistently blamed recent price gains on market speculation, geopolitical tensions, and the weakening dollar, rather than a lack of supplies in the market.

Some have explained the recent record highs seen in oil and other commodity markets, set against the backdrop of an economic slowdown, as indicative of a broader trend.

Goldman Sachs analysts have argued that booming demand from developing nations, increased resource nationalism, and decades of underinvestment in commodities has created an environment where prices can continue to rise despite a slowing economy.

'The most recent rise in commodity prices is simply the extension of the structural bull rally in commodities that is now in its ninth year, and the fact that the rally continues in the midst of an economic slowdown simply serves to highlight the fact that this bull rally is structural, not cyclical,' analysts at Goldman's said, warning that prices will probably remain at higher levels until significant investment increases production capacity to a level capable of meeting future demand projections.

'Solving the politically driven supply constraints will be a very difficult and protracted process which will likely lead to explosive prices in the next couple of years, with oil prices potentially spiking toward 175 usd a barrel, particularly should growth in the G7 re-accelerate in 2009 and beyond.'

Goldman Sachs was one of the first investment banks to predict oil prices at 100 usd a barrel. They recently increased their 2008 average price forecast to 105 usd a barrel.