U.S. crude passed the $101 mark earlier in the day before settling lower. London Brent crude rose $1.98 to a record for the European benchmark of $99.67.
"The weak dollar seems to be the biggest catalyst for this boost," said Mark Waggoner, president of Excel Futures Inc in Huntington Beach, California.
A weak dollar can lead traders to push up nominal prices for commodities denominated in the currency as a way of preserving value in other currencies.
The dollar tumbled Tuesday after reports showed U.S. consumer confidence slumped to its worst in five years while inflation soared among producers, sparking fears of stagflation.
While a weak dollar can sometimes trigger commodities buying, worries about an economic slowdown have also tempered oil's rally in recent weeks by dimming the outlook for global
Oil's gains added to a 42-cent rise on Monday that was led by heating fuels as cold weather hit parts of Europe and seasonal temperatures lingered over the northern U.S. states following a mild start to winter.
"We have had some cold weather influence since Friday, which seems to have caught people's imagination," said Tony Machacek of Bache Commodities.
Energy traders have also been cautiously eyeing signals from the Organization of the Petroleum Exporting Countries ahead of the group's meeting March 5. OPEC's president said Tuesday members would agree not to raise production, in part because of fears of a demand slowdown.
"I can tell you they are not going to increase production because there are plenty of stocks," OPEC President Chakib Khelil told Reuters in Nigeria's capital Abuja.
Oil prices hit a record $101.32 a barrel last week.
Some oil market analysts believe a seasonal drop in demand could even lead OPEC to curb oil shipments unofficially.
"The recovery in (crude oil) stocks, the downward revisions to demand and an upcoming seasonal drop in world demand for the second quarter have not escaped OPEC's detection," Tim Evans, an analyst at Citi, said in a research note.
In the United States, crude oil supplies are forecast to have risen last week by 2.5 million barrels, the seventh increase in a row, as refineries undergoing maintenance have built up stocks.
A preliminary Reuters poll of industry analysts predicted U.S. distillates stocks, including heating oil and diesel, were expected to maintain their seasonal decline due to cold temperatures and a dip in production and imports.
The U.S. government data is due on Wednesday.