VIENNA, Austria (AP) -- Oil prices topped $109 a barrel for the first time Tuesday as investors sought refuge from the anemic dollar.
Oil's growing strength comes amid warnings that there are no signs of relief on the immediate horizon.
Speculation that rising prices for oil and other commodities will offset the falling dollar has driven oil up from $87 a barrel in January.
Oil's latest rise came as the International Energy Agency said crude prices will likely be underpinned by brisk demand in China and other emerging markets.
Light sweet crude for April delivery on the New York Mercantile Exchange surged to $109.72 a barrel before slipping back to $109.34 a barrel by early afternoon in electronic trading in Europe.
But even that later level was $1.51 higher than the previous record high set Monday, reflecting oil's seemingly inexorable march toward the psychologically significant $110 a barrel mark.
Crude futures on Monday rose $2.75 to a settlement record of $107.90 a barrel.
The dollar slipped as crude climbed, with the euro notching another record high against the U.S. currency, rising to more than a cent to $1.5464 in morning trading in Europe compared to late Monday in New York.
The dollar has fallen to three-year lows against the yen and the head of the European Central Bank expressed concern Monday about the "disorderly movements" of exchange rates.
"This surge to new records is driven by the speculative and large funds moving money into commodities. It's primarily a U.S. dollar and inflation play by financial investors," said Victor Shum, an energy analyst with Purvin & Gertz in Singapore.
Oil's growing strength came amid warnings that there were no signs of relief on the immediate horizon.
The Paris-based IEA said Tuesday that high crude prices continue to chip away at oil consumption in the United States and other developed countries.
In its monthly report, the agency revised down 2008 crude consumption in the U.S., Europe and other developed markets, forecasting a drop of 190,000 barrels a day to 49.3 million barrels a day.
In past years, falling demand in rich countries delivered some relief from high oil prices.
But today, most of the oil demand growth is coming from China, India and other fast-growing emerging markets, where consumers are largely protected from the effects of high oil prices because of fuel subsidies that reduce incentives for conservation.
Many analysts believe speculative investing attracted by the weak dollar is the primary reason oil has risen so far so fast in recent months. Crude futures offer a hedge against a falling dollar, and oil futures bought and sold in dollars are more attractive to foreign investors when the dollar is falling.
And expectations are growing that the U.S. Federal Reserve will cut interest rates at its policy planners' next meeting March 18.
"Lower interest rates would mean increasing liquidity, which means a further weakening of the U.S. dollar and rising U.S. inflation," Shum said. "What that means for investors is that they therefore move their money into commodities as a hedge against inflation."
The price jumps came despite forecasts of builds in U.S. oil stocks.
U.S. Energy Information Administration releases its short-term energy outlook later Tuesday and weekly oil and product inventory data on Wednesday. These indicators, along with the Commerce Department's retail sales data release on Thursday, are traditionally used as cues for oil prices, though their impact has been muted lately.
A Dow Jones Newswires survey of analysts found an average forecast of a 1.7 million barrel increase in oil inventories for the week ending March 7, a 100,000 barrel increase in gasoline stocks and a 2 million barrel draw in distillate inventories.
Many analysts believe the rise in crude prices is not supported by the market's underlying fundamentals, noting that supplies are generally rising while demand is falling.
"Crude oil futures' relentless advance is a price bubble and certainly, a sharp pullback cannot be ruled out," Shum said.
"What may at some point trigger investors to exit oil is perhaps a build up of poor economic data out of the U.S.," he added. "That may be enough of a trigger to refocus attentions on the U.S. and slow oil demand growth there."
Natural gas was following oil higher, but also rising in anticipation of cooler temperatures across the U.S. Midwest and Northeast, analysts said.
In London, Brent futures followed the lead of benchmark crude, rising 87 cents to trade at $105.03 a barrel.