A weakening U.S. dollar, low U.S. crude inventories and increased buying by investment funds also supported prices, counterbalancing expectations of higher inventories in the weekly U.S. supply report.

The Turkish government's decision Monday to ask Parliament for permission to pursue Kurdish rebels into Iraq stoked the worries about potential interruptions to oil supplies.

"Whenever there is any escalation in political tensions in the Middle East, oil markets become concerned," said David Moore, a commodity strategist at the Commonwealth Bank of Australia in Sydney. "There is production and there are pipelines that people worry may be affected if there are any issues in Iraq."

There have been several skirmishes along the Turkey-Iraq border already. Although oil coming out of the region has been erratic, a total disruption would send prices higher, analysts said.

After surging in earlier trading to intraday highs near $87 a barrel, light, sweet crude for November delivery on the New York Mercantile Exchange rose 46 cents to $86.59 in electronic trading by afternoon in Europe. The contract had jumped $2.44 to settle at a record close of $86.13 a barrel Monday.

Brent crude advanced 60 cents to $83.35 a barrel on the ICE Futures exchange in London.

"Eight-six dollars is a historically high level. ... Many people are looking at this level for the first time so it's very difficult to say what will happen next," said Tetsu Emori, commodity markets fund manager at ASTMAX Futures Co. in Tokyo. "All the factors in the market are bullish, there are no bearish factors except maybe that the market looks like it's been overbought, technically."

Despite the gains, Nymex oil is still below inflation-adjusted highs hit in early 1980. Depending on the adjustment, a $38 barrel of oil in 1980 would be worth $96 to $101 or more today.

Technical buying by investment funds is also driving oil's record run, analysts say. Data released Friday showed that speculative buying of oil contracts increased last week.

"Particularly because the oil price has been so strong, that in itself may have attracted some speculators to oil," Moore said.

Many investment funds automatically buy or sell oil futures when prices hit certain levels. In recent days, as oil has pushed into record territory, several of these resistance prices levels have been broached. That triggers new buying, driving prices even higher.

Analysts also cited the weak U.S. dollar—which makes crude cheaper for traders using other currencies—as a factor in higher commodity prices generally. The dollar lost ground Monday to most major currencies before recouping some losses Tuesday.

Expectations that Wednesday's U.S. inventory report would show crude and gasoline stock increases failed to dent the climb. Vienna's PVM Oil Associates said forecasts called for "a rise in the U.S. crude stocks of about 1.4 million barrels ... (and) an extra 700,000 barrels" for gasoline, while distillates—diesel and fuel oil—were expected to diminish by 350,000 barrels.

Heating oil futures were up 0.4 of a cent, fetching $2.3112 a gallon while gasoline prices rose by nearly a penny to $2.1667 a gallon. Natural gas futures were up 2.4 cents to $7.475 per 1,000 cubic feet.