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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.