The market was awaiting the latest weekly snapshot of energy inventories in the United States, the world's biggest oil consumer, to be published by the US government on Wednesday.

 

Supply concerns

 

Tony Nunan, of Mitsubishi Corporation's international petroleum business, said concerns over supplies not keeping up with demand were driving prices higher.

 

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"The market is technically and fund-driven right now," he said, referring to investors buying into oil in hopes for higher returns.

 

David Moore, a commodity strategist at the Commonwealth Bank of Australia, said a weaker US dollar and "the recent trend for analysts to revise higher their oil price forecasts" are helping to push up prices.

 

Analysts added that a need for diesel-fuelled power generation in earthquake-affected areas of China was boosting demand for the fuel.

 

"If there is an upside driver in energy these days, it is the diesel markets," Ed Meir said, a MF Global analyst.

 

"Sentiment here continues to remain very bullish on concern that much diesel needs to be imported into China to power generators," Meir said.

 

Market speculators blamed

 

Venezuela blames market speculators for the spiraling international price of crude and rejected increased production as a way to calm the market.

 

Rafael Ramirez, Venezuela's oil minister, said: "Prices have risen spectacularly because of speculation, because of the devaluation of the dollar and world inflation," after meeting with Abdullah el-Badri, the Organisation of Petroleum Exporting Countries (OPEC) secretary general.

 

"Any rise in production would be immediately put in stock and this would have a negative impact on prices," he said.

 

As the price of a barrel of crude headed for $130, Ramirez insisted the problem was "not linked to supply and demand". 

 

Analysts said a decision by Saudi Arabia, the world's biggest oil producer, to raise output had not done much to lower crude prices.

 

Many officials belonging to Opec argue that record oil prices are being driven by speculators seizing on geopolitical unrest, such as in Nigeria, Africa's biggest exporter of crude.

 

Eric Wittenauer, analyst at Wachovia Securities, said reports about growing tensions between Washington and Tehran heightened concerns about a conflict that could affect oil supplies in Iran and the wider Middle East.

 

He said the market reacted to an article in the Jerusalem Post that said George Bush, the US President, "intends to attack Iran before the end of his term."

 

"We have certainly not ruled out the possibility of conflict later this year," Wittenauer said.

 

Price fixing allegations

 

In Washington, the House of Representatives passed a bill authorising the federal government to sue Opec in US courts over alleged price fixing, in the latest swipe at the cartel over skyrocketing oil prices.

 

Bush has however threatened to veto the legislation, although its margin of passage in the House suggested Democrats could get a two-thirds majority needed to sustain the largely symbolic measure.