U.S. crude rose 30 cents to $86.32 a barrel by 8:40 a.m. London Brent rose 23 cents to $83.50.
Oil had fallen more than $4 from a record high of $90.07 set last Friday, pressured partly by falls in gold and other commodities as the dollar rallied from a record low against the euro. But the dollar gave up some of these gains on Tuesday.
Oil's advance was also interrupted by concerns that a housing slump in the United States, the world's largest oil consumer, could act as a drag on the economy and limit future oil demand.
There are worries that record oil prices could add to pressures on the fragile U.S. economy. But economists say the overall impact will still be marginal compared with the upheaval caused by oil price shocks in the 1970s.
"All the players have learned a lot since then," Jan Amrit Poser, chief economist at Swiss private bank Sarasin, wrote in a research note.
"The energy efficiency of the global economy has improved by a factor of three in the meantime. Although total oil consumption has risen, the energy costs per dollar earned have fallen to a third of what they were in the seventies."
Oil has risen about 40 percent from the start of the year, propelled by worries about a tighter supply/demand balance ahead of the Northern Hemisphere's winter, plus political tensions in the Middle East.
Fears that Turkey might push into northern Iraq helped drive prices to new peaks last week. But Turkey said late on Monday it would exhaust diplomatic channels before any strike into northern Iraq against Kurdish rebels, who killed at least a dozen Turkish soldiers in fighting over the weekend.
The Organisation of the Petroleum Exporting Countries has boosted October supplies by 500,000 barrels per day in anticipation of November 1, when an agreement to raise production kicks in, according to tanker tracker Petrologistics.
The 10 OPEC members subject to output limits, all except Iraq and Angola, are set to pump 27.5 million barrels per day, up 300,000 bpd on September, led by kingpin Saudi Arabia.
Overall output is set to rise 500,000 bpd to 31.4 million.
"The market is still overheated from its rally and could go down to around $80. But depending on what the U.S. stocks do and if the dollar weakens again, the market could go up to $90," said Gerard Rigby from Fuel First Consulting in Sydney.
Top consumer the United States will release weekly oil stocks data on Wednesday.
U.S. crude oil stocks are seen up 100,000 barrels, after a 1.8 million-barrel build in the week ended October 12. A Reuters poll also forecast a 1.1 million-barrel increase in gasoline stocks but a 300,000-barrel draw on distillates for the week to October 19.