Oil rose to $135 a barrel overnight reversing some of the previous session's heavy $4 drop, but the market could stay under downward pressure as the US dollar strengthens.
The market also expects US gasoline stocks to rise, while watching developments following Saudi Arabia's plan to call a meeting between producers and consumers to discuss soaring crude prices, which have gained more than 40 per cent so far this year.
US light crude for July delivery rose 65 cents a barrel to $135 early this mornign, having settled down $4.19 at $134.35 on yesterday.
On Friday, oil logged its biggest one-day gain, of $10.75, to hit a record above $139 a barrel.
London Brent crude rose 52 cents to $134.43.
The dollar jumped to a 3-month high against the yen today after US Federal Reserve Chairman Ben Bernanke said the recent rise in oil prices was adding to inflation risks, stoking expectations for interest rate hikes this year.
The greenback's jump extended Monday's rise after US Treasury Secretary Henry Paulson refused to rule out intervening in currency markets to stabilize the US currency, adding the Bush administration was "focused" on both the dollar and oil prices.