NEW YORK (CNNMoney.com) -- Oil prices fell Wednesday after a weekly report showed that U.S. supplies fell less than expected, although crude still remained within striking distance of $100 a barrel.
U.S. light crude for December delivery lost 33 cents to settle at $96.37 a barrel on the New York Mercantile Exchange. Oil set a new trading high overnight of $98.62.
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| Oil's assault on $100 a barrel stalled Wednesday after U.S. supplies fell less than expected. |
Traders were expecting oil prices to climb following the inventory report. Instead, oil seesawed after the announcement that supplies declined less than expected.
In its weekly inventory report, the Energy Information Administration said crude stocks fell by 800,000 barrels last week. Analysts were looking for a drop of 1.6 million barrels, according to a Dow Jones poll.
Distillates, used to make heating oil and diesel fuel, rose by 100,000 barrels while gasoline supplies fell by 800,000 barrels. Analysts were looking for a 500,000 barrel decline in distillate supplies and a 200,000 barrel gain in gasoline stockpiles.
Most of the decline in crude is being blamed on an outage from Pemex, Mexico's national oil company. Mexico, after Canada, is the second largest source of imported U.S. oil.
While oil has been expected to test the $100 mark for several days, one analyst said crossing the psychologically important threshold may prove a challenge.
Many hedge funds bought when prices were around $80 a barrel, and many may want to cash out and take the $16 or $18 profit without waiting around to see if the $100 level can be broken, according to Peter Beutel, an oil analyst at Cameron Hanover.
"We certainly would not risk $16 or more for the last $2 or $3 a barrel," Beutel wrote in a research note. "Because of this, we have to expect to see a number of professional traders take profits before we actually see $100."
Still, many see crossing the $100 as inevitable.
"I still think all systems are good to go to $100," said Stephen Schork, publisher of the industry newsletter the Schork Report. "It hard to imagine we'd get up to this level and not see it."
Prices hit a new record earlier in the day after the International Energy Agency said China and India will sap world oil supplies faster than previously thought.
In its yearly forecast, the agency said under current policies the world will use 50 percent more energy by 2030 than it uses today, with 45 percent of that demand coming from India and China.
The two countries are expected to use nearly four times more oil by 2030, and IEA questioned the world's ability to meet such rampant demand.
"Although production capacity at new fields is expected to increase over the next five years, it is very uncertain whether it will be sufficient to compensate for the decline in output at existing fields and meet the projected increase in demand," the report said. "A supply-side crunch in the period to 2015, involving an abrupt escalation in oil prices, cannot be ruled out."
A falling dollar also pushed prices higher. The dollar hit a fresh low of $1.4729 against the euro Wednesday on speculation that China would seek to diversify some of its foreign currency reserves.
And an attack on a pipeline in Yemen Monday that disrupted the daily flow of 155,000 barrels is still likely having an effect on prices.
Crude has shot from under $80 a barrel to near $100 in less than a month, a jump of more than 20 percent. The gain is unusual because this time of year is known as a shoulder season - marked by slack demand - between the summer driving and winter heating months.
Fighting between Turkey and the Kurds in oil-rich northern Iraq, reports showing demand outpacing supply, a falling dollar and lots of speculative investing have been among the reasons cited for the run-up.
Retail gasoline prices, shielded from rising crude prices over the last several weeks as demand remained low, have begun to catch up.
The average price for a gallon of regular nationwide is now $3.04, up from $2.77 a month ago, according to the motorist organization AAA.
Crude is now at or near all-time highs, even adjusted for inflation. The last time oil was this high was the early 1980s, when it rose to $93 to $101 a barrel, depending on the inflation calculation used and the oil contract cited.
Crude oil prices have surged nearly five-fold since trading below $20 a barrel in 2002. Analysts say surging global demand combined with limited new supply is the main underlying factor.
The surge in prices has also attracted lots of speculative investment money, further driving prices higher.
The impact speculative investment has on prices is under debate. Some analysts note that only a small percentage of contracts are held by speculators - investment banks, hedge funds and others that are not end users of oil. They point to rising growth in India and China when asked why oil prices are so high, and also note these investors can cause the price to fall just as dramatically and quickly when the market turns down.
Others say there is plenty of supply and these investors are pouring money into oil because oil is easier to buy on margin than are stocks. Buying on margin is when only a small percent of the worth of the contract is required to trade it.
They say fundamentals - like rising demand from India and China - have been known for some time, yet note that crude has fluctuated from below $50 to near $100 just this year, and say that is evidence of pure speculation.
Either way, world oil supplies are currently stretched. That tight supply and demand situation magnifies the effect that geopolitical tensions have on prices, as there is less spare supply available globally to cover disruptions from places like Iran, Nigeria or Venezuela.
The falling U.S. dollar has also played a role, as oil worldwide is priced in dollars. Oil-producing nations have less incentive to ramp up output if the buying power they receive per barrel is declining, and foreign consumers have less incentive to reduce demand if oil is, relatively, getting cheaper for them. 
