World oil prices stayed close to record levels on Thursday as disruptions in US and Iraqi output outweighed assurances by Saudi Arabia, the world's top exporter, that it could immediately add supply if needed.
A fairly hefty drop in US crude inventories added to concerns that supply may not be able to keep pace with soaring demand, which is growing at the fastest rate in 24 years.
US light crude slipped 3 cents to $44.77 a barrel, less than 30 cents off the record high for New York crude futures at $45.04 struck on August 10.
London's Brent crude futures closed on Wednesday at $41.57 a barrel, also just off its all-time high at $41.70.
"Everything's gone wrong in the oil market recently. If you wanted to paint the worst scenario picture, you couldn't do much well," said David Thurtell, commodities strategist at Commonwealth Bank of Australia.
A series of explosions rocked the Iraqi City Najaf on Thursday as fighting between US marines and Shi-tie Muslim militia entered a second week, raising the prospect of more sabotage attacks on Iraq's oil industry.
Militiamen loyal to Shiite Muslim cleric Moqtada al-Sadder have threatened to blow up oil pipelines if Iraqi government forces and US storm the holy city to root out Seder's militia.
Iraqi oil exports were running at about 1 million barrels per day (bpd) compared to the 1.9 million being pumped before a sabotage attack on Monday on the main southern export pipeline.
Adding to supply concerns, about 25 percent of US Gulf of Mexico oil production of 1.7 million bpd were shut on Wednesday by tropical storm Bonnie.
Oil supplies in the world's biggest oil consumer had already shown an unexpected fall according to latest government data, which showed a 4.3-million-barrel decline in crude inventories in the week to August 6 as imports slipped.
Fears that tightly stretched supplies have left little leeway for any disruptions have added 19 percent, or $7, to a barrel of crude oil since the end of June.
Traders remain worried that the August 15 referendum on the rule of Venezuelan President Hugo Chavez could upset supplies from the world's fifth-biggest exporter, while Russia's biggest oil exporter, YUKOS, battles bankruptcy, trying to avoid any disruption to its 1.7 million-bpd of production.
"The sharp price increases across the oil complex in response to potential and ongoing supply disruptions underscores the current vulnerability of the oil market, as extremely strong demand growth has pushed the level of global oil demand very close to global supply constraints," said Goldman Sachs.
Traders are getting increasingly concerned about a capacity crunch in the Organisation of Petroleum Exporting Countries, despite assurances by Saudi Arabia it could increase supply.
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