A string of pipeline bombings in recent weeks has cut oil production in Nigeria by tens of thousands of barrels per day, contributing to the sharp rise in oil prices.

 

June delivery fell 7 cents to $121.77 a barrel in electronic trading on the New York mercantile exchange by midday in Singapore. The contract on Tuesday soared to a record $122.73 a barrel before retreating to settle at $121.84, up $1.87.

 

"Clearly there's a lot of concerns about supply at the moment. The market's very jittery on any type of news, particularly supply disruptions," Mark Pervan, senior commodity strategist at ANZ Bank in Melbourne said.

 

The cost of oil

Q&A: Why oil prices keep rising

"There are many in the market who think these prices are as good as it gets and are positioned to see lower prices but we continue to see one-off supply issues keeping prices high," he added.

 

The rise in crude futures also gained momentum on Tuesday as investors bought on a Goldman Sachs prediction that oil prices could rise to $150 to $200 within two years.

 

Expectations that US crude supplies increased last week were helping to limit oil's rise ahead of the release of the US energy information administration's report on fuel inventories later on Wednesday.

 

Analysts surveyed by energy research firm Platts expected the report to show that crude oil inventories rose by 1.5 million barrels last week.

 

Gasoline stocks were projected to drop by 500,000 barrels, according to the Platts survey. Inventories of distillates, which include heating oil and diesel, were expected to have risen by 1.3 million barrels.