Oil prices jumped to a new record Friday, rattling stock investors and raising the specter of another round of sticker shock at the gas pump.
Crude oil for June delivery gained $2.27 to close at $125.96 a barrel in New York trading. It reached as high as $126.20 during the day.
It was oil's sixth straight daily gain, and breaching the $125-a-barrel mark sets the stage for further gains, both in the futures pits and at the gas pump, analysts said.
"Consumers and end-users are clearly about to get hit by some of the stiffest increases in 2008 that are only now working their way through the distribution chain," Tom Kloza, chief oil analyst for the Oil Price Information Service, wrote in a report to clients, noting that crude prices have been rising much faster than gasoline prices.
Motorists are already paying record prices, AAA said in its latest report. The statewide average price for regular gasoline in California is now at $3.929 a gallon, up from $3.746 a month ago and $3.486 at this time last year, the group said.
Analysts said there were no dramatic developments behind the latest upward move in crude. But oil prices have climbed more than 30% this year and almost 12% since May 1, convincing many investors that the momentum play in crude futures shows no sign of slowing.
"We blew through 115, 120 and 125," said Andrew Lipow, a Houston energy consultant. "With that kind of price movement, people don't even want to sell anymore because they see it just keeps going up, and that kind of feeds on itself."
The speculative fever around crude has even given rise to talk on Wall Street of a new "super spike" that could push prices to $150 or even $200 a barrel.
That sort of talk is unnerving to stock investors. On Friday, the Dow Jones industrial average fell 120.90 points, or almost 1%, to 12,745.88. That brought the Dow's loss for the week to 2.4% and snapped a three-week winning streak.
The stock rally over the last few weeks was fed by generally good news, including better-than-expected jobless and earnings numbers, as well as the sense that the global financial crisis was nearing its latter stages.
But the tone has shifted this week as investors wait to see how far oil will rise and how that will affect the economy.
"The big fly in the ointment has been oil," said Keith Wirtz, chief investment officer at Fifth Third Asset Management in Cincinnati. "No one thought a year ago that oil at $60 a barrel would double. That's the main factor as to why this market may lose some steam in the near term."
Stock investors fear that rising gas prices will crimp economic growth, both by diverting consumer spending away from retailers and by pushing up costs for a wide range of businesses, including farmers, plastics manufacturers and cruise ship companies.
Just this week, major U.S. airlines announced their 11th fare hike in the last five months -- a $20-per-ticket fuel surcharge. The fuel surcharge on some domestic round-trip tickets can now total $130, said Tom Parsons, chief executive of Bestfares.com.
The bad news is even spreading to energy stocks, which were broadly lower Friday in part on concerns that crude prices have gotten so high that some refiners may have trouble passing on all of their raw material costs to consumers.
Grim news from the financial sector also weighed on stocks Friday. American International Group lost $3.87 to $40.28 after it reported a massive loss linked to sub-prime mortgages, raising fears that the credit crisis is not over. And struggling Citigroup fell 67 cents to $23.63 after saying it planned to sell more than $400 billion in assets.
The Standard & Poor's 500 index ended the day off 9.40 points, or 0.7%, at 1,388.28, while the tech-heavy Nasdaq composite index slipped 5.72 points, or 0.2%, to 2,445.52.
Besides speculation, other factors behind oil's recent rise include rising demand in nations such as China and India, which are keeping worldwide supplies tight despite signs of slackening demand in the U.S.
The weakening dollar also has been a factor, in part because crude is priced in dollars, making it more attractive for many overseas investors. The European Central Bank said it was unlikely to cut interest rates, which would help strengthen the dollar against the euro.
On Friday, the dollar fell against the euro, which rose to $1.548 from $1.540. Bonds were little changed, with the yield on the 10-year U.S. Treasury note slipping to 3.77% from 3.78%.
Geopolitical factors also have played a role. Renewed concerns that the U.S. may impose sanctions against Venezuela, one of its biggest suppliers, added to the upward pressure on prices Friday.
Although gasoline supplies are stabilizing, the U.S. government reported this week that supplies of other crude by-products such as diesel fuel and heating oil are down. That's bad news for truck drivers, who are paying a record $4.521 for a gallon of diesel in California, according to AAA.
Absent a sharp rebound in the dollar or a significant buildup of supplies, it may take a painful economic slowdown in the U.S., Europe and Japan to put a serious dent in petroleum demand and significantly bring down crude prices, Lipow said.
"It's not a pretty picture," he said.