Oil climbed further above $75 yesterday as Israel prepared to advance deeper into Lebanon, ignoring calls for a ceasefire, and saboteurs again attacked Iraq's northern oil export pipeline.
Violence in the Middle East, which pumps a third of the world's oil, is keeping prices within striking distance of July's $78.40 a barrel record high.
London Brent crude was up 51 cents at $75.66 and US crude was up 40 cents at $74.80.
"Oil is a geopolitical barometer at the moment," said James Neale, an analyst with Citigroup Investment Research.
Oil markets are on edge that the war in Lebanon could suck in oil producers Iran and Syria, both allies of Hizbollah, and interrupt exports from the region.
Three weeks after the conflict erupted when Hezbollah guerrillas snatched two Israeli soldiers, an Israeli cabinet member said the army needed up to two more weeks to finish its offensive.
"I don't think there will be any quick and easy resolution. Even if the UN peacekeepers go into Lebanon, it will just mean that there's a third group stuck in the quagmire," said Tony Nunan, a manager with Mitsubishi in Tokyo.
Fresh sabotage of a pipeline carrying crude from Iraq's northern oil fields to Turkey's Ceyhan port pushed back the planned restart of exports along this route.