Crude oil raced above 135 dollars a barrel for the first time, then retreated Thursday as the dollar firmed and investors took profit from the record-setting rally.
New York's main oil futures contract, light sweet crude for July delivery, closed at 130.81 dollars a barrel, a drop of 2.36 dollars from Wednesday's record close at 133.17.
In London, Brent North Sea crude for July delivery settled at 130.51 dollars, off 2.19 dollars from Wednesday's record close at 132.70.
Both benchmark futures contracts earlier struck all-time highs on concerns about tight supplies: New York's at 135.09 dollars and Brent at 135.14.
"Investors doubt that the market will be able to meet ever-growing demand in the long run, with booming emerging market economies underpinning robust demand for energy," said Andrey Kryuchenkov at the Sucden brokerage in London.
The market took a breather after a run of feverish trading. Crude crossed 120 dollars a barrel for the first time only two and a half weeks ago.
Traders attributed the retreat to a combination of factors, including a bounce in the US dollar and investors locking in gains after oil's recent sharp rally.
"We generally believe any pullback in prices is better viewed as a correction rather than a longer-term reversal," said Eric Wittenauer, an analyst at Wachovia Securities.
On Wednesday, oil price surged after government data released earlier in the session showed US crude and gasoline inventories surprisingly fell ahead of the peak demand driving season, which officially kicks off next week.
Oil prices also have been underpinned by unrest in oil-producing countries, OPEC's unwillingness to hike output, high Asian demand for fuel and a weak dollar.
Algeria's energy minister and OPEC president, Chakib Khelil, said Thursday that falling production in non-OPEC countries such as Russia has contributed to the spectacular rise in global oil prices.
"Outside of the sustained growth in demand from major consumers and emerging countries, and the continued devaluation of the dollar, the fall in crude production in non-OPEC countries such as Russia, Norway and Mexico has also contributed to the rising price," Khelil told reporters on the sidelines of a parliament meeting.
Abdala El-Badri, the secretary general of the Organization of the Petroleum Exporting Countries, said that cartel members were unhappy with surging prices he blamed on speculators and a weak US dollar.
"We are not very happy with this increase in oil prices," said El-Badri during a visit to Ecuador.
"Volatility has nothing to do with the fundamentals. It has nothing to do with world demand," he said, stressing that a dropping dollar was driving prices higher.
OPEC, which produces 40 percent of the world's oil, is reluctant to bend to US-led demands for it to pump more crude to help cool rocketing prices.
The 13-nation cartel insists that the market is well supplied and that record prices reflect speculative investment activity rather than underlying supply and demand conditions.
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