Oil prices didn't set a Nymex closing record Tuesday, but they came very close.
Nymex crude oil for June delivery rose $1.57 per barrel, or 1.3 percent, to settle at $125.80. That close is 0.1 percent short of its Nymex nominal record close of $125.96 reached on May 9.
London Brent crude was similarly higher.
The price of oil hovered near $126 a barrel in volatile trading for most of Tuesday, briefly touching a new intraday record near $127, after Iranian President Mahmoud Ahmadinejad said a proposal to reduce the country's crude output was being reviewed by experts, the semi-official Fars News Agency reported on Tuesday.
A decline in China's oil imports in April, the first year-on-year drop in 18 months, raised questions over demand earlier. China is the world's second-largest oil consumer after the United States.
"Although I still think we have more upside potential, perhaps all the way up to $130, I think the market is getting ready for a correction," said Nauman Barakat of Macquarie Futures USA.
Record-high oil prices will slow global oil demand growth this year to 1.03 million barrels per day (bpd), said the IEA, 230,000 bpd less than its previous forecast.
But the adviser to 27 industrialized countries also said demand growth from emerging countries led by China and the Middle East remained strong.
Investors wondered how long demand could hold up given the sharp rise in oil prices, which first hit $100 in January.
"It's not the absolute level, it's the rate," said Evan Smith of Texas-based fund manager U.S. Global Investors.
A too-rapid rise in prices is "what's going to cause oil prices to hold back. It's going to be demand destructive."
China's April crude oil imports fell by 3.9 percent from a year ago to 3.47 million bpd, and were also down from the record of 4.07 million bpd in March, official Chinese data showed.
The market has kept a close watch on oil demand in China and India, whose economic booms have helped send prices up sixfold since 2002.
Weekly U.S. inventory data on Wednesday will provide further direction to the market after an unexpected fall in distillates stocks, which include heating oil and diesel fuel, pushed prices higher last week.
U.S. crude inventories are expected to have risen for a fourth straight week, while products stocks would also rise, helped by an increase in refinery utilization, a Reuters poll of analysts found.