Oil rallied to $93 after U.S. weekly data showed that crude inventories fell by 3.9 million barrels, countering expectations for an increase.

U.S. oil futures rose $3.04 to $93.42 a barrel by 10:50 a.m. EDT, off lows of $88.92, on top of a $4 slide in the previous session. It hit a record high of $93.80 on Monday.

London Brent gained $2.39 cents to $89.83.

U.S. weekly crude stocks fell by 3.9 million barrels to 312.7 million.

Investors are still awaiting a U.S. Federal Reserve decision, also due on Wednesday, on whether to cut interest rates to spur economic growth.

The current hysteria in the oil markets is not being driven by economic fundamentals in the U.S., but if something surprising comes up, like a decision to leave rates on hold, that could push the price downwards, said James Rilett, who helps manage an energy fund at Liquid Capital Markets in London.

Investors said they expected profit-taking to continue in the absence of any fresh geopolitical factors.

The move to $93-plus levels was driven by speculation, said Badung Tariono, who manages ABN AMRO's Energy fund out of Amsterdam.

If you look at product prices, which is a gauge of refinery demand, they didn't go up by the same magnitude. This shows that the world's sufficiently supplied in terms of crude, he added.

Those views were echoed by the Organisation of Arab Petroleum Exporting Countries (OAPEC), whose Secretary-General Abdel Aziz Abdullah al-Turki said the oil market was no longer driven purely by demand and supply factors, but by speculators.

There are those who trade in what are called paper barrels, and this is now five times the real trade, he told reporters in Cairo.

Just as Federal Reserve policy-makers began meeting on Tuesday against the backdrop of a plummeting U.S. housing market, expectations were for a quarter percentage point cut to 4.5 percent.

Rising stocks may give OPEC even more cause to resist pressure to increase production, especially with its agreed 500,000 barrels per day (bpd) rise due to take effect on Thursday.

An Iranian oil official warned on Wednesday that a bubble in oil prices, created by geopolitical concerns, would burst one day, reiterating that the surge in prices was not because of a lack of supply.

OPEC is not very happy with the existing situation that shows a lack of stability in world oil markets, Javad Yarjani, head of OPEC affairs at Iran's Oil Ministry, was quoted as saying.

The return of Mexican crude oil production also provided some relief as the country, a top-three oil supplier to the United States, will be able to operate its storm-crippled crude oil production as per normal by Thursday.

(Additional reporting by Jiwon Chung in Singapore and Elena Moya in London)