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NEW YORK — Oil prices surged nearly $2 a barrel Thursday as the dollar fell against the euro and investors anticipated strong demand for diesel fuel in parts of China ravaged by Monday's earthquake. Gas prices, meanwhile, advanced past $3.77 a gallon.

Light, sweet crude for June delivery rose $1.87 to $126.09 a barrel on the New York Mercantile Exchange.

The dollar's long decline has been one of the driving forces behind oil's record-setting climb. Many investors buy commodities such as oil as a hedge against inflation when the greenback falls; also, a weaker dollar makes oil less expensive to investors overseas.

Oil futures were also following heating oil prices higher. Heating oil is closely related to diesel fuel, and is often traded as a proxy for diesel. Some investors are concerned that damage to China's natural gas infrastructure will lead to a temporary spike in demand for diesel. Heating oil futures for June delivery rose 4.92 cents to $3.667 on the Nymex.

In the U.S., diesel fuel prices jumped 3.6 cents Thursday to a new national average of $4.455 a gallon, according to a survey of stations by AAA and the Oil Price Information Service. Diesel is used to fuel most trucks, trains and ships, and is a large part of the reason prices of food and consumer goods are rising so fast.

Mike Lynch, president of Strategic Energy & Economic Research Inc. in Winchester, Mass., doubts the impact on distillate prices from the earthquake will last long. Natural gas pipelines are easy to fix, and there have been recent indications that Chinese demand for oil is waning, he said. Still, until repairs are made, "you can imagine a lot of diesel generators firing up," Lynch said.

At the pump, meanwhile, the national average price of a gallon of regular gas rose 1.8 cents overnight to a national average of $3.776. Prices are 67 cents higher than a year ago, and many analysts think they could rise as high as $4 on a national basis in coming weeks. Consumers in many areas are already paying that much, or more.

However, Lynch thinks gas prices will peak around $3.85 to $3.90 a gallon on a national basis just before the Memorial Day weekend.

"I don't think we'll go much higher than that," he said.

Demand for gasoline has been sliding since January, and many analysts think American consumers' declining appetite for fuel will eventually pull prices down. However, that theory could prove wrong if continued dollar weakness pushes oil to new records. Oil prices reached a trading record of $126.98 a barrel on Tuesday.

Oil prices may be more volatile in coming days as investors square positions ahead of the June contract's expiration next week.

In other Nymex trading Thursday, June gasoline futures rose 3.89 cents to $3.2193 a gallon, and June natural gas futures rose 4.2 cents to $11.64 per 1,000 cubic feet.

In London, June Brent crude rose 90 cents to $122.76 a barrel on the ICE Futures exchange.