US light crude set a fresh peak of $55.67 a barrel before easing to $55.09 a barrel, down 8 cents. London Brent posted a record $51.90 a barrel before slipping to $51.18, down 4 cents. Prices are up 70 percent since the start of the year.

Employers group the Norwegian Shipowners Association threatened to expand a lockout of oil rig workers to shut Norway's three million barrels per day of oil output in a bid to force an end to a four-month-old labor dispute.

"The expansion, which will start from midnight Monday Nov. 8, will have immediate effect and will halt all oil and gas production on the Norwegian continental shelf within a week," the association said.

The Norwegian government responded by calling striking workers' union OFS for talks at 1500 GMT, a meeting interpreted by union leader Terje Nustad as likely to bring a request to return to work.

Norway's government has in the past stepped in to end oil labor disputes when there is a threat to the national economy and workers said the employers' threat was a ploy to provoke the government to intervene. So far the strike has closed just 55,000 bpd.

The Norwegian threat boosted a market already jittery over a supply outage in the US Gulf which has disrupted the normal stockbuild of heating fuel ahead of winter.

The long-lasting impact of Hurricane Ivan, which tore through the U.S. Gulf of Mexico in mid-September, has kept closed more than 400,000 barrels per day of crude output.

Weekly US government data last week showed a drop in distillate (heating oil and diesel) supplies that left heating fuel at a 12 percent deficit versus last year.

In addition, growth in US diesel demand has not yet responded to higher prices at the pump.

"Current prices do not seem sufficiently high to slow distillate demand, whether for diesel (truck traffic) or domestic heating oil," said Frederic Lasserre of SG Commodities Research.

"Extremely strong diesel demand and Hurricane Ivan's lingering effect on production continues to reduce stocks and to maintain high market volatility."

US heating oil prices were close to record highs, rising 0.56 cent to $1.60 a gallon.

Forecasters remain uncertain over the winter weather outlook in the big heating oil consuming region of the US Northeast where an early or severe winter could eat even further into inventories.

Stocks in other major winter fuel consumers like Japan and Germany also are lower than normal.

Low European stocks mean European prices are too high to permit profitable sales of heating oil to the United States, as is common at this time of year.

But high energy costs are starting to show some signs of eating into economic growth and oil demand.

Crude oil imports into South Korea, the world's number four importer, were 1.5 percent lower in September than a year earlier as refiners chose to draw down stocks rather than pay higher prices, state-run Korean National Oil Corp. (KNOC) said.

In China, the engine behind this year's surge in oil demand, the government has moved to throttle back double-digit growth rates to cool the blazing economy, but the pace of economic expansion is still quick at more than nine percent, data showed last week.