Oil prices hit a new record high above US$126 Friday as a weaker U.S. dollar drove investments into commodities.

Light, sweet crude for June delivery rose US$2.51 to a new record of US$126.20 a barrel in electronic trading on the New York Mercantile Exchange by the afternoon in Europe.

On Thursday, the contract rose to a record close of US$123.69 a barrel. In London, Brent crude contracts also hit record highs before slipping, and traded up US$2.98 on the day at US$125.82 a barrel on the ICE Futures exchange. Earlier Friday, Brent had reached US$125.90.

Comments Thursday from European Central Bank president Jean-Claude Trichet signaling that the bank was unlikely to consider interest rate cuts helped strengthen the euro against the U.S. currency.

By the afternoon in Europe, the euro stood at US$1.5444 compared to US$1.5404 in late trading Thursday night in New York. The dollar was also weaker Friday against the British pound and the Japanese yen.

Investors view commodities such as oil as a hedge against inflation, and some analysts think the dollar's protracted decline is the main reason behind oil prices doubling from a year ago. Also, a weaker dollar makes oil cheaper to investors overseas.

On Friday, The Wall Street Journal published a report tying Venezuela President Hugo Chavez to rebels attempting to overthrow Colombia's government, heightening chances that the U.S. could impose sanctions on one of its biggest oil suppliers as a state sponsor of terror.

"If we put on sanctions, I'm sure Chavez would threaten to cut off our oil supply," said Phil Flynn, an analyst at Alaron Trading Corp. in Chicago. "Obviously, that would have a major impact on oil prices."

Even if Chavez cuts oil shipments to the U.S., Venezuela would still pump and sell oil and much of it would go to the U.S. via middle men, Flynn said.

But adding that layer to the supply chain would add costs, he explained.

A prediction by analysts at Goldman Sachs seeing oil rising as high as US$150 to US$200 a barrel within two years also has boosted prices. Analysts, however, struggled to explain the continued rise of oil futures after a larger-than-expected buildup of crude oil stocks reported Wednesday in the United States.

Some pointed to a small decline in distillate stocks, which include diesel and heating oil and normally drive prices during the Northern Hemisphere winter; others said speculation and computer-generated buying was keeping oil prices high.

"Crude oil is currently held up in a tug-of-war between the Goldman reality and the physical reality," said Olivier Jakob of Switzerland's Petromatrix in a research note, adding that the investment bank's prediction made for "a great story to support pension funds piling more into commodities."

Mark Pervan, senior commodity strategist at ANZ Bank in Melbourne, Australia, said it may be a combination of continued wariness over potential supply disruptions as well as prospects for a strengthening in crude demand heading into the U.S. summer driving season.

"U.S. gasoline stocks have certainly dropped quite sharply over the last month," he said. "What'll happen in the near term is that we may likely see an uptick in U.S. refining capacity to rebuild gasoline stocks and we may see a short-term build in crude demand as a result."

Prices may also be getting a boost from comments Thursday by the OPEC secretary general.

Abdalla Salem El-Badri on Thursday reiterated his position that oil supplies are adequate, and that there is no need for the cartel to boost production. He said several Organization of Petroleum Exporting Countries oil projects are coming on line, but he noted that several member countries are having a hard time finding buyers for their additional supplies.

In other Nymex trading, June gasoline futures rose 4.04 cents to $3.1782 a gallon (3.8 liters), while heating oil futures rose 7.68 cents to $3.5866 a gallon. Natural gas futures rose 14.5 cents to US$11.408 per 1,000 cubic feet.