Oil prices rose above $130 a barrel for the first time Wednesday as supply concerns mounted and the dollar weakened, reported CNN.
U.S. crude for July delivery traded as high as $130.25 a barrel in electronic trading. The July contract closed at $128.98 in the floor session.
The dollar had become less of a factor as attention turned to supply and demand concerns, but that seems to have changed this week.
"We've seen an about-face turn on the dollar in the last couple of days," said Mark Pervan, senior commodity strategist at Australia & New Zealand Bank in Melbourne.
"It looked like it was starting to recover, but I think there's a less certain outlook at the minute and ... enough reason to be buying commodities as a currency hedge again."
In Tokyo's currency market, the dollar was trading in mid-103 yen level, down from the ¥104-¥105 range last week. And the euro has started to climb again against the dollar, rising above $1.57 in Asian trading.
Investors see hard commodities such as oil as a hedge against inflation and a weak dollar and pour into the future market when the greenback falls. A weak dollar also makes oil less expensive to buyers dealing in other currencies.
The June contract, which expired Tuesday, shot to a record intraday high of $129.60 before settling at $129.07 a barrel, up $2.02 from Monday. The expiration of that contract created additional volatility as traders scrambled to lock in positions.
Tuesday's performance was the 10th time in the last 12 sessions that crude prices have hit trading or closing records, if not both. CNN International's Financial Editor Todd Benjamin explains why prices are rising
Oil futures are now selling for about twice what they were just a year ago. Prices have been propelled by a number of factors, including worries about insufficient supply, soaring global demand and a sliding dollar that has made oil cheaper for some buyers overseas. Speculative buying has also helped push prices higher, analysts say.
Industry observers in recent days have also pointed to especially strong demand for diesel in China, where power plants in some areas are running desperately short of coal and certain earthquake-hit regions are relying on diesel generators for power. The country is also ramping up diesel imports ahead of the Olympics, analysts say, driving up prices.
Besides that, "major Chinese petrochemical companies are really struggling to keep up with demand. The trend is that we're going to continue to see pretty strong crude imports (from China) going forward," Pervan said. "That's what the market is really getting on board."
Crude's latest surge also comes after Algerian Energy Minister Chakib Khelil, OPEC's current president, was quoted by a government newspaper as saying the cartel won't boost output before its next meeting on Sept. 9, adding to concerns about global supply.
That added to worries about gasoline and diesel supplies at the start of the summer driving season in the U.S., where retail prices for the motor fuels are already at record levels. Many analysts expect prices for both fuels will continue to rise.
In other Nymex trading, heating oil futures rose 1.01 cents to $3.7851 a gallon while gasoline prices rose 0.53 cent to $3.3097 a gallon. Natural gas futures, meanwhile, rose 9.6 cents to $11.461 per 1,000 cubic feet.