Oil held above $98 a barrel on Wednesday, after closing in on the $100 milestone as the dollar hit new lows and cold weather in the United States, the world's biggest fuel consumer, stirred anxiety over winter supplies.
U.S. light crude surged to a record $99.29 early in the session, but then edged down from this peak to stand at $98.39, up 36 cents at 8:04 a.m. EST.
Prices blasted past the previous $98.62 record, extending a rally that has lifted oil by 45 percent since mid-August as speculative investment rises, supplies tighten and the dollar weakens.
It's firing on its own momentum -- do or die to reach $100, said Jonathan Barratt, of Australia's Commodity Broking Services.
London Brent crude was up 28 cents at $95.77.
Oil's strength is in part a result of the weakness of the dollar, which has spurred buying of relatively cheap dollar-denominated commodities.
The dollar sank to a new record low against the euro and versus a basket of currencies on Wednesday after the U.S. Federal Reserve cut its growth outlook for next year, boosting chances of another interest rate cut in December.
High oil prices could add to pressures on the fragile U.S. economy, which could ultimately impact demand for oil.
The rising cost of oil, for example, could force more than three-quarters of Americans to tighten their budgets by cutting fuel use or by slashing spending elsewhere, according to a Reuters/Zogby poll.
Some 32.5 percent of people surveyed said they would drive less if oil prices kept rising, while 20.8 percent said they would try to conserve energy at home and 22.8 percent said they would cut spending on retail and entertainment.
Gold and platinum have also rallied in response to the falling dollar, although copper and zinc have slumped to multi-month lows on concerns the U.S. mortgage crisis could slow economic growth and demand.
The next signal for oil markets will come from U.S. weekly inventory data for release at 10:30 a.m. EST.
The mythical $100 a barrel is of course within reach for today with or without the help of the weekly statistics, said Olivier Jakob of Petromatrix.
U.S. weekly distillate stocks -- which include heating oil -- were expected to have declined by 300,000 barrels last week, according to a Reuters poll of analysts ahead of Wednesday's data.
Crude stocks were predicted to have risen by 600,000 barrels and gasoline stocks by 800,000 barrels.
Even with another expected increase in crude stocks, U.S. Energy Secretary Sam Bodman has said producers need to pump more to bring prices down from levels that are close to a record in nominal and inflation-adjusted terms.
But the Organization of the Petroleum Exporting Countries, which meets on December 5 in Abu Dhabi to chart supply policy, has said the market is well-supplied and it is up to consumer countries to curb speculation through regulation.
(Additional reporting by Angela Moon in Seoul, Fayen Wong in Sydney, Peg Mackey in London)