Oil rose further above $75 a barrel on Tuesday as dealers saw little hope for a quick end to the conflict in Lebanon and refinery outages threatened to tighten supplies in the midst of the US summer driving season. US crude for September rose 37 cents to $75.42 a barrel by 0704 GMT, climbing for a third day, while London Brent crude gained 45 cents to $75.06.
US Secretary of State Condoleezza Rice holds talks with Israeli Prime Minister Ehud Olmert on Tuesday, one day after meeting Lebanese leaders in an effort to end a two-week war between Israel and Hizbollah guerrillas that oil traders fear might destabilise exports from major regional producers. But she offered little hope for an immediate end to the conflict, and a White House spokesman said any immediate cease-fire would be "unenforceable".
"(Geopolitics) certainly help put a floor in the market," said John Brady, a New York broker at ABN Amro. "With the gasoline and hurricane seasons as well, there's a lot of wind at the back of the bulls."
Oil hit a record-high of $78.40 earlier in July on fears the fighting could spread to other parts of the Middle East, which produces about a third of the world's oil.
Gains gathered pace after traders said a crude distillation unit at Venezuela's Amuay refinery - part of the world's biggest refining complex and a top supplier of US gasoline imports - will be shut for five to seven months following a fire last week.
Hiccups at several US plants, forecasts for a tropical disturbance to form in the Gulf of Mexico in the next few days and news that Royal Dutch Shell had been forced to trim more output at its Nigerian Bonny oilfields added to the unease.
Surging oil demand from China, which posted its third month of double-digit growth amid soaring fuel oil imports and curbed gasoline exports, lent additional support.
Apparent oil demand from the world's second-largest consumer rose 15 percent in June from a year ago, putting the first-half increase at 8 percent, Reuters calculations based on official data show, with refineries churning out more fuel after a 15 percent increase in retail prices since March.
US gasoline inventories were expected to have slipped by 400,000 barrels last week, while crude stocks were seen dipping 100,000 barrels, a preliminary Reuters poll found. S]
Gasoline futures climbed 0.5 percent, or 1.18 cents, to $2.3260 a gallon on Tuesday. Oil prices have risen about 23 percent this year and nearly quadrupled since early 2002, but some who have profited from the rally are now questioning how far it still has to run.
Legendary trader and long-time oil bull Boone Pickens, estimated to have made $1.5 billion last year at his BP Capital LLC hedge fund, said he expected crude to top $80 a barrel this year, but was less confident on seeing a triple-digit price.
"If I went to sleep this afternoon and woke up January 1 and you told me oil was $100 a barrel I wouldn't be surprised. Would I bet on it? No," Pickens told Reuters in a telephone interview.