UPDATE 15-Oil surges over $134 on supply woes, weak dollar

(Updates with Goldman forecast in paragraph 8)

By Richard Valdmanis

NEW YORK, May 21 (Reuters) - Oil prices surged $5 to a record over $134 a barrel on Wednesday after a U.S. government report showed a surprise drop in crude stockpiles, reinvigorating fears of a supply crunch.

The gains bring oil up more than 34 percent so far this year in a rally that has raised alarm bells in consumer countries like the United States, already hard-hit by a housing slump and credit crisis.

Weakness in the U.S. dollar encouraged Wednesday's buying spree by bolstering the purchasing power of buyers holding other currencies, dealers said.

U.S. crude CLc1 settled up $4.19 at $133.17 a barrel before extending its gains to $134.10 by 2100 GMT. London Brent LCOc1 rose $4.86 to end at $132.70.

The U.S. Energy Information Administration reported that crude stockpiles in the world's biggest energy consumer fell 5.4 million barrels last week, countering expectations for a build. [EIA/S]

"This report gives the market every reason to rally," said Rob Kurzatkowski, analyst at optionsXpress in Chicago.

The fall in weekly inventories intensified concerns that supply problems will persist for years as production falls short of growth in demand. Oil for delivery in December 2016 CLZ6 rose above $142 a barrel on Wednesday -- making it the loftiest contract on the futures curve.