Anchorage Daily News

Oil prices continued their gravity-defying ascent Tuesday, topping $120 a barrel for the first time ever.

It was only just more than a year ago that prices rocketed past $70 for the first time.

The rising price -- driven by growing consumption in China and elsewhere as well as by tightening supplies and speculation -- is being felt acutely by motorists at the gas pump and is trickling through the economy, lifting prices for everything from food to air travel.

For Alaska, the high prices have brought a revenue windfall because of the state's new, higher tax rate and because most oil fields lie under state land.

Before adjourning last month, the state Legislature approved a record $11.2 billion budget for state government operations and a near-record $2.9 billion budget for roads, buildings, earmarks and grants. Lawmakers still had $5 billion left over to put into savings.

And oil prices have risen about $10 a barrel since the Legislature adjourned in mid-April. Every $10 change in the price is worth about $1.5 billion in state revenue over a year, according to Revenue Department estimates.

On Tuesday, the price of North Slope oil was $121.84 a barrel on West Coast open markets, up $1.87 for the day.

Alaskans are suffering at the gas pump like the rest of the country, however. The current average price for gasoline in Anchorage was $3.76 a gallon Tuesday, up from $2.84 a year ago, according to AAA Alaska. The price increase was steeper for buyers of diesel fuel: $4.34 a gallon Tuesday vs. $2.74 a year earlier.

'SUPER SPIKE'

A new Goldman Sachs report predicts that oil prices could rise to $150 to $200 within two years. Goldman sees the price surge of the past year as a sign that the world is amid a "super spike" in oil prices. Analyst Arjun Murti said in a research note released Monday that prices would ultimately force demand to fall sharply.

It's not the first time Murti has espoused a super spike theory; in April 2005, he predicted the oil market was in the early stages of an unprecedented rally that would send prices from a then-record of about $57 a barrel to $105.

Not everyone shares Goldman's view. Tim Evans, an analyst at Citigroup Inc., countered Goldman's analysis with a note predicting that crude prices could as easily fall to $40 a barrel as rise to $200 over the next two years because supplies are, as Evans put it, comfortable.

Domestic gasoline consumption is expected to fall more steeply than expected this year, a new U.S. Energy Department forecast said, an indication that higher prices are cutting into the driving habits of many Americans. But gasoline prices are expected to rise nonetheless and should average $3.52 a gallon for the full year, or 71 cents above their average price in 2007, according to the government's latest estimates. The current national average is $3.61 a gallon.

GAS TAX HOLIDAY

The high cost of fuel has become a major issue in the presidential race, with the Democratic candidates, Sens. Hillary Rodham Clinton and Barack Obama, clashing over a temporary summer waiver of the 18.4-cent-a-gallon federal gasoline tax.

The gas tax holiday is supported by Clinton and the presumptive Republican nominee, Sen. John McCain, who have both said it would provide some relief ahead of the summer driving season. Obama calls the idea "pandering" and said that cutting the tax would spur more consumption, pushing prices back up.

Despite higher prices, global oil demand is still projected to rise by 1.2 million barrels a day this year, mostly because of growing consumption in China, the Middle East, Russia, Brazil and India.

China alone will account for a third of the jump in consumption. In March, Chinese imports rose by 800,000 barrels a day, compared with levels a year earlier, a big increase that could mean China is filling its oil reserve needs before the start of the Olympic Games this summer.

Meanwhile, oil supplies continue to lag. After a drop in Nigerian output last month, production by OPEC nations fell 1 percent in April, according to a survey by Bloomberg News.

Oil prices continued their gravity-defying ascent Tuesday, topping $120 a barrel for the first time ever.

It was only just more than a year ago that prices rocketed past $70 for the first time.

The rising price -- driven by growing consumption in China and elsewhere as well as by tightening supplies and speculation -- is being felt acutely by motorists at the gas pump and is trickling through the economy, lifting prices for everything from food to air travel.

For Alaska, the high prices have brought a revenue windfall because of the state's new, higher tax rate and because most oil fields lie under state land.

Before adjourning last month, the state Legislature approved a record $11.2 billion budget for state government operations and a near record $2.9 billion budget for roads, buildings, earmarks and grants. Lawmakers still had $5 billion left over to put into savings.

And oil prices have risen about $10 a barrel since the Legislature adjourned in mid-April. Every $10 change in the price is worth about $1.5 billion in state revenue over a year, according to Revenue Department estimates.

On Tuesday, the price of North Slope oil was $121.84 a barrel on West Coast open markets, up $1.87 for the day.

Alaskans are suffering at the gas pump like the rest of the country, however. The current average price for gasoline in Anchorage was $3.76 a gallon Tuesday, up from $2.84 a year ago, according to AAA Alaska. The price increase was steeper for buyers of diesel fuel: $4.34 a gallon Tuesday vs. $2.74 a year earlier.

'SUPER SPIKE'

A new Goldman Sachs report predicts that oil prices could rise to $150 to $200 within two years. Goldman sees the price surge of the past year as a sign that the world is amid a "super spike" in oil prices. Analyst Arjun Murti said in a research note released Monday that prices would ultimately force demand to fall sharply.

It's not the first time Murti has espoused a super spike theory; in April 2005, he predicted the oil market was in the early stages of an unprecedented rally that would send prices from a then-record of about $57 a barrel to $105.

Not everyone shares Goldman's view. Tim Evans, an analyst at Citigroup Inc., countered Goldman's analysis with a note predicting that crude prices could as easily fall to $40 a barrel as rise to $200 over the next two years because supplies are, as Evans put it, comfortable.

Domestic gasoline consumption is expected to fall more steeply than expected this year, a new U.S. Energy Department forecast said, an indication that higher prices are cutting into the driving habits of many Americans. But gasoline prices are expected to rise nonetheless and should average $3.52 a gallon for the full year, or 71 cents above their average price in 2007, according to the government's latest estimates. The current national average is $3.61 a gallon.

GAS TAX HOLIDAY

The high cost of fuel has become a major issue in the presidential race, with the Democratic candidates, Sens. Hillary Rodham Clinton and Barack Obama, clashing over a temporary summer waiver of the 18.4-cent-a-gallon federal gasoline tax.

The gas tax holiday is supported by Clinton and the presumptive Republican nominee, Sen. John McCain, who have both said it would provide some relief ahead of the summer driving season. Obama calls the idea "pandering" and said that cutting the tax would spur more consumption, pushing prices back up.

Despite higher prices, global oil demand is still projected to rise by 1.2 million barrels a day this year, mostly because of growing consumption in China, the Middle East, Russia, Brazil and India.

China alone will account for a third of the jump in consumption. In March, Chinese imports rose by 800,000 barrels a day, compared with levels a year earlier, a big increase that could mean China is filling its oil reserve needs before the start of the Olympic Games this summer.

Meanwhile, oil supplies continue to lag. After a drop in Nigerian output last month, production by OPEC nations fell 1 percent in April, according to a survey by Bloomberg News.

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