Oil rallied to a fresh record high above $92 a barrel on Friday as the dollar tumbled to a record low, Washington imposed new sanctions on Iran and gunmen shut more oil production in Nigeria.
Oil's bullish momentum has pulled in increasing amounts of speculative investment and waves of technical buying have been triggered as U.S. oil pierced successive lines of resistance.
At 6:14 a.m. EDT U.S. crude was up 71 cents at $91.17, off a record $92.22. It is closing in on its inflation-adjusted high of $101.70 seen over the course of April 1980, a year after the Iranian revolution and at the start of the Iran-Iraq war.
London Brent was up 42 cents at $87.90.
The market is founded on fear and supply-side concerns, said Gerard Burg, an analyst at National Australia Bank.
On Thursday the United States placed new sanctions on Iran, the world's fourth biggest oil exporter, and accused its Revolutionary Guard of spreading weapons of mass destruction. Iran is at odds with the United Nations over its nuclear program.
An attack on a Nigerian oil rig operated by Italian firm ENI shut 50,000 barrels per day of production and reminded investors that Africa's biggest producer is a long way from restoring order and normal output in the oil-rich delta.
Unprecedented weakness in the dollar has been another factor driving prices of dollar-denominated commodities higher.
In anticipation that the U.S. Federal Reserve may cut interest rates next week, the dollar hit fresh record lows against the euro and a basket of currencies on Friday.
While U.S oil has surged 50 percent since the start of the year, the price rise in euros lags at 38 percent.
Moves by central banks to cut interest rates and pump billions of dollars into financial markets to ease a credit crunch have added fuel to oil's rally. Since mid-August, when the Federal Reserve cut U.S. rates, oil has climbed 30 percent.
At the same time the U.S. and European asset-backed commercial paper market has shrunk by some $400 billion.
Analysts said investor positions in U.S. crude options suggested traders were betting on further rises. A wave of call, or buy, options kicked in on Thursday as U.S. oil broke $90.
The next big layer of call open interest is sitting on the $100 a barrel strike and this will become the next target if current dynamics allow U.S. crude to rise above $95, said Olivier Jakob of Swiss-based Petromatrix.
In his view, prices are being driven by option dynamics and supported by U.S. policy towards Iran. In an edgy market bullish headlines were being over-amplified, he reasoned.
Higher prices have so far had a limited impact on economic growth and demand but investors are alert to signs the U.S. housing slump is spilling over into the broader economy.
There are some indications of a slowdown in China's demand growth, another big driver of oil's rally.
The gap between world prices and low state-set Chinese prices have pushed refiners to cut runs, leading to some diesel pumps running dry in the southwest of the country.
China's apparent oil demand grew at the slowest rate in 20 months in September, up just 0.3 percent from a year earlier.
(additional reporting by Annika Breidthardt in Singapore)