Oil leapt more than a dollar on Tuesday, rebounding to above $95 a barrel as financial players drove volatility.
Investors, wary of global equity markets where the full impact of the credit crunch has yet to become clear, see oil as a good bet, especially given tight fuel supplies in the run up to the northern hemisphere winter.
U.S. crude rose $1.23 to $95.21 a barrel, closing in on its peak of $96.24 hit last week.
London Brent crude jumped $1.26 to $91.75 a barrel.
The prospect of more fallout from the U.S. subprime crisis sent oil tumbling $2 a barrel on Monday as investors worried that slowing economic growth in the United States would curb demand for fuel.
Those concerns persisted on Tuesday, pushing the dollar to record lows against a basket of major currencies. Stock markets recovered and gold hit a 28-year peak.
Today the stock market is steady, which is supporting NYMEX, said Ken Hasegawa, of Fimat Japan Inc.
Oil's surge from below $70 in mid-August has been stoked by a weak dollar and speculative inflows into oil and other commodities -- and extended by evidence of dwindling supply.
U.S. crude oil stocks were expected to have fallen a further 1.6 million barrels last week due to disruptions to short-haul Mexican shipments, a preliminary Reuters poll found.
Distillate inventories were seen falling by 700,000 barrels and gasoline stocks by 100,000 barrels.
Inventories in Japan, the world's third-largest consumer, are also running below comfort levels.
The temperatures in December in the north are expected to be below normal, so that is also a concern for us with the low inventories, said Hasegawa.
U.S. Energy Secretary Sam Bodman said current prices were a terrible problem for consumers, adding he hoped producer group OPEC would ramp up output to ease prices. Many OPEC officials have rejected that call.
Venezuelan Oil Minister Rafael Ramirez on Monday echoed other officials, saying high prices were due to speculation and geopolitical tensions, not a shortfall in supplies.
(Additional reporting by Jonathan Leff in Singapore)