Oil hovered just above $129 on Wednesday, within striking distance of the previous session's record high as Opec again said it would not raise supply while demand rages on and a weaker dollar supports funds buying.
The new front-month US light crude contract for July delivery stood at $129 by 0234 GMT. The June contract that expired on Tuesday settled up $2.02 in New York, after hitting a new intraday high of $129.60.
"A weak dollar boosts buying of commodities as a counterhedge. There is growing demand in China but supplies remain tight," said Mark Pervan, a senior commodities analyst at Australia & New Zealand Bank.
The dollar steadied against the euro on Wednesday after hitting a one-month low against a basket of currencies the previous day.
Despite record-high oil prices, members of the Organization of the Petroleum Exporting Countries (Opec) have repeatedly rebuffed calls for more supplies from consumer nations hard hit by the inflation in fuel costs, instead blaming the rally on rampant speculation.
Speaking to Reuters in an interview during a visit to Venezuela, Opec Secretary General Abdullah Al-Badri said oil prices could keep rising if non-market factors such as the weakening dollar continue to put pressure on prices, but that Opec would only act when market fundamentals showed a need to do so.
Energy analysts say an Opec decision to raise output could help ease the price rally, which they say has been fuelled largely by resilient world energy demand even as the United States economy slows.
The US House of Representatives approved legislation on Tuesday allowing the Justice Department to sue Opec members for limiting oil supplies, but the White House threatened to veto the measure because it could spur "retaliatory action against American interests in those countries".
Persistent robust diesel imports into China, the world's second-biggest energy user, have fuelled prices around the globe. European gas oil's premium to London Brent crude hit a peak of $40 last week, boosting margins for refineries.
Oil prices have risen sixfold since 2002 as surging demand in China and other developing economies strained supplies and drew in a wave of investor interest.
Billionaire investor T Boone Pickens said on Tuesday he expected oil to hit $150 a barrel this year. The prediction came on the same day two investment banks raised their 2008 crude price forecasts and two weeks after Goldman Sachs said a barrel could fetch $200 by 2010.
Investment banks Societe Generale and Credit Suisse raised their oil price forecasts for 2008 on Tuesday by $14 to $115 a barrel and by $29 to $120 a barrel, respectively. - Reuters