Crude oil prices on Wednesday jumped more than $5 to within sight of the record after a report showed stockpiles in the United States fell sharply for the fourth week in a row, intensifying worries of a worsening global crunch.
Weakness in the U.S. dollar and supply problems in OPEC member Nigeria encouraged the rally, dealers said.
"The big crude draw is obviously bullish, but more importantly for the oil markets, the dollar is falling and that could send us back to near $140 a barrel,'' said Mark Waggoner, president of Excel Futures in Huntington Beach, California.
U.S. light, sweet crude rose $5.07 to settle at $136.38 a barrel, within reach of last week's record near $140. London Brent crude rose $4.00 to $135.02 a barrel.
Oil prices have risen nearly seven-fold since 2002 amid rising demand from China and other developing countries, pressuring major consumers like the United States already hobbled by a housing slowdown and credit crunch.
Representatives of the world's biggest oil consumer and producer nations will meet in Saudi Arabia June 22 to discuss the oil spike, which producer group OPEC says is due to speculation, not a lack of supply.
U.S. regulators are also slated to meet this week to discuss oversight of the oil and commodities futures markets amid pressure from lawmakers who also blame speculators for inflation in food and energy costs.
Wednesday's oil price gains came after the U.S. Energy Information Administration reported that crude stockpiles dropped 4.6 million barrels last week, the fourth consecutive weekly decline amid soft import levels.
Inventories of crude in the world's biggest energy consumer have fallen by 7 percent since early May, intensifying concerns that global oil production is failing to keep pace with rising demand from developing Asian economies.
"The crude oil draw was a surprise. We just keep dropping there,'' said Jim Ritterbusch, president of Ritterbusch & Associates in Galena, Illinois.
The report comes after the EIA and the Paris-based International Energy Agency on Tuesday slashed their forecasts for oil production from non-OPEC nations this year amid steep field declines and delays in new projects.
The slowing growth in non-OPEC oil production was expected to keep the world oil market tight even as high prices and economic turmoil bite into consumption, a factor that led the EIA on Tuesday to raise its 2008 oil price forecast by 12 percent to $122.15 a barrel.
Dealers said a decline in the U.S. dollar on Wednesday also encouraged buying.
The weak greenback in recent months has drawn billions of dollars into commodities markets as investors seek a hedge against inflation.
Oil prices also got a boost from news that Shell Oil (RDSa.L) was extending its force majeure on oil shipments from Nigeria through July following a spate of rebel attacks on facilities earlier this spring.
Experts also pointed to figures from the Chinese government showing a 25 percent year-on-year increase in the nation's imports of oil in May, which experts said was related to stockpiling ahead of the Beijing Olympics and increased demand for fuel after the earthquakes.