Oil sped above $98 a barrel for the first time on Wednesday, closing in on the landmark $100 level, driven by a slumping U.S. dollar and worries over a winter fuel supply crunch.

Analysts said it was only a matter of time before oil hit triple digits, with evidence of tightening stocks aiding a nearly 8 percent rise over the past two weeks alone.

We're going to get $100 before too long, said Kevin Norrish of Barclays Capital.

U.S. crude rose $1.42 by 6:24 a.m. EST to $98.12 having earlier hit a record $98.62. London Brent crude also hit a new peak of $95.19, and was later up $1.27 at $94.53.

Investors, wary of global equity markets where the full blow of the credit crunch has yet to be felt, see commodities as a sure bet. Since mid-August, oil has soared nearly $30 and gold is at a 28-year high.

Record weakness in the U.S. dollar has also helped to fuel oil's rally, as investors see dollar assets as relatively cheap.

Oil gained momentum on Wednesday after the U.S. dollar plumbed to new lows against the euro as credit market turmoil kept alive the prospects of another Federal Reserve rate cut.

The surge brings oil within a hair of the inflation-adjusted record peak of $101.70 hit in 1980 when war between OPEC producers Iran and Iraq ignited an oil supply crisis.

This time round, demand -- fuelled by exploding growth in China and a steady increase from the United States -- has been a major driver behind a more-than-quadrupling in the oil price since 2002.

NEW ENERGY ORDER

Rapid demand growth will see China overtaking the United States as the world's top energy consumer soon after 2010, the International Energy Agency (IEA) said on Wednesday.

As oil flirts with $100, consumer governments are fretting over their economies and the IEA warned oil could soar to a nominal $159 in 2030 with higher than expected demand growth.

We are experiencing high oil prices today and if actions are not taken in years to come, we can see a supply crunch which is not good news for anybody and it may end up with very high prices, IEA Chief Economist Fatih Birol told Reuters.

For now, however, supply and demand have taken a backseat to the role of financial investors when it comes to setting prices, according to the Organization of the Petroleum Exporting Countries, supplier of more than a third of the world's crude.

OPEC agreed to raise production by 500,000 bpd from November 1 and has shrugged off calls to pump more, blaming the rally on speculators and political tension in the Middle East.

Consumers, led by the IEA, disagree, saying producers should turn up the taps.

At current prices, the market is signaling that stocks need to be higher, something in the power of producers to address, IEA Executive Director Nobuo Tanaka said.

A weekly U.S. inventory report due later on Wednesday is expected to show crude stocks in the world's biggest energy consumer had fallen 900,000 barrels last week due to disruptions to Mexican exports, a Reuters poll found.

(Additional reporting by Jonathan Leff in Singapore; Editing by Alex Lawler)

China Iraq Energy OPEC