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Crude-oil futures staged a dramatic reversal in midday trading Thursday, at one point falling nearly $6 below its intraday high before recovering. Traders attributed the reversal to a combination of factors, including a sharp drop in natural gas prices, the options expiration of the June contract and broad fund-selling as traders locked in profits.

But for market bulls, there is little to fear.

UBS Investment Research’s Jan Stuart joined the growing chorus of Wall Street economists Thursday in predicting that the oil bull market still has much further room to run as demand growth is accelerating and supply remains tight.

“We are abandoning the idea of a near-term collapse in oil prices under the weight of a U.S. recession,” Stuart said in a research note.

UBS now expects the price for Brent oil will average $113.50 per barrel this year, $120 barrel in 2009 and $116 barrel in 2010. The new forecasts are 30%, 52% and 55% higher than prior estimates, and exceed consensus by 25% for 2008. For WTI (West Texas Intermediate) crude oil, the brokerage forecasts the price will average $115 this year, $120 next year, and $116 in 2010, which are 32%, 54% and 53% higher than previous forecasts.

Oil prices have rallied so sharply and counter-intuitively in the last seven months that it’s tempting to think that speculation or the slumping dollar are to blame, Stuart said. But when you look closely, it’s clear that fundamentals are at work, that oil markets are tight in key places and that relief from that tightening is still several quarters away, he said.

Real demand growth for several key oil products accelerated last winter, while their supply was constrained. “The resultant tension in oil markets has not abated,” he said. “Stress may well intensify this summer and in any case should play out all over again next winter. We therefore see no reason for prices to ‘correct’ until mid-2009.”

As oil hits record highs almost daily, many Wall Street analysts have been rushing to revise their oil price forecasts upward. Earlier this month, Goldman Sachs Arjun Murti argued that the possibility of oil at $150 to $200 per barrel “seems increasingly likely” over the next six to 24 months. In late April, CIBC World Markets wrote in a report that the “unprecedented scarcity” in supply will push oil prices to $150 a barrel by 2010, and $225 a barrel by 2012.

But a recent survey of oil and gas executives showed a majority expect oil prices will drop “significantly” from the current record level to less than $100 a barrel by the end of the year.

Thanks to the federal government’s $168 billion economic stimulus package, more than 130 million U.S. households will be wealthier by the end of June. The question is, what will consumers do with their new-found cash?

According to a recent Cowen & Co. survey of more than 1,000 people, specialty retailers banking their second-quarter outlooks on inflows from rebate funds may be out of luck. “We believe expectations for tax rebates to stimulate specialty retailers spending are overstated,” analyst Lauren Cooks Levitan said in a note to clients. Levitan said the study’s results suggest that rebate funds will be used primarily to pay bills or purchase essential items, having only a limited effect on specialty retailers as compared to mass merchants.

The average respondent intends to spend just 15.4% of a refund on non-essential items, according to the survey, and 65% of respondents do not intend to buy any non-essential items at all with a refund.

Another key takeaway from the survey was that discount stores are the most likely destination of consumer’s rebate funds, following by big-box superstores. That’s great news for the likes of Wal-Mart, which has at least one Wall Street analyst speculating that the company’s second-quarter earnings guidance of 78 cents to 81 cents a share could prove conservative given that it doesn’t take into account rebate spending. That could be even better news if wal-Mart has plans to provide additional incentives to shoppers spending their tax rebate in the store, the study suggested, because 45% of respondents indicated they would be very likely or likely to shop at retailers doing just that.

Consumers’ overall plans for the tax rebate dollars were also in line with their answers regarding recent shopping patterns, which highlighted that 39% of consumers surveyed said they are shopping less at full-price retailers and more at discount stores than they did one year ago. Going even further, 54% of respondents said they are making fewer purchases at full price and buying more items on sale - even 41% of higher income households ($100,000+) indicated they are making fewer full price purchases.

“While we are encouraged by progress made by many specialty retailers in lowering inventories and expenses to provide some downside protection against weak sales, we believe the current expectations embed improved overall retail and consumer trends in the second half of 2008, partially boosted by the anticipated benefit of tax rebates, which our survey indicates could prove overly optimistic,” Levitan said.

Wall Street is on track to open flat to higher on Thursday ahead of a speech by Federal Reserve Chairman Ben Bernanke on the credit crisis, with General Electric Co. an early focus on a report it is preparing to auction off its appliances business.

A string of economic reports also will provide direction for investors.

According to spread bettors IG index, the Dow Jones industrial average is expected to open down about 2 points at 12,896. Separately, S&P 500 futures were up 2.20 points at 1,410, while Nasdaq 100 futures rose 4.50 points to 2,001.

Wall Street advanced Wednesday after a better-than-expected report on consumer prices tempered some of the market’s concerns about inflation. The Dow Jones industrial average rose 66.20, or 0.51%, to close at 12,898.38, the Nasdaq composite index added 1.58, or 0.06%, to 2,496.70, and the Standard & Poor’s 500 index gained 5.62, or 0.40%, to 1,408.66. The yield on the benchmark 10-year Treasury note fell to 3.92% from 3.94% late Tuesday, and light, sweet crude oil fell $1.58 to settle at $124.22 a barrel on the New York Mercantile Exchange.

ECONOMIC DATA:

• Empire State Manufacturing index for May, 8:30 a.m. ET, 0.00 estimate
• Initial jobless claims, 8:30 a.m. ET, 370,000 estimate
• Industrial production for April, 9:15 a.m. ET, -0.3% estimate
• Capacity utilization for April, 9:15 a.m. ET, 80.1% estimate
• Philadelphia Fed Survey for May, 10 a.m. ET, -20.0 estimate
• National Association of Home Builders index for May, 1 p.m. ET, 21 estimate

EARNINGS HIGHLIGHTS:

Company                 Symbol    Period     Estimate 

Autodesk Inc.            ADSK       1Q       $  .48
Blackstone Group         BX         1Q          .12
Blockbuster Inc.         BBI        1Q          .15
BMC Software             BMC        4Q          .51
Compuware Corp.          CPWR       4Q          .21
J.C. Penney              JCP        1Q          .50
Kohl's Corp.             KSS        1Q          .44
Nordstrom Inc.           JWN        1Q          .49

AFTER-HOURS ACTION:

After Wednesday’s close of trading, media reports said Carl Icahn is moving forward with a full proxy slate to replace Yahoo Inc.’s board of directors. Agilent Technologies Inc. posted a fiscal second-quarter adjusted profit of 51 cents a share, beating the mean estimate of Wall Street analysts.