Oil rose towards $142 a barrel on Wednesday, within sight of a record high, boosted by forecasts that global supply will lag demand and further weakness in the dollar.
The International Energy Agency (IEA) on Tuesday cut its global oil supply forecast for the next five years, giving a further lift to prices already supported by tension between Iran and Israel.
US crude rose 63 cents to $141.60 a barrel by 0833 GMT, while London Brent gained $1.08 to $141.75. US crude hit a record high of $143.67 on Monday.
The weak dollar also supported crude. The euro extended earlier gains against the dollar to hit a two-month high on Wednesday as traders anticipated the European Central Bank would raise interest rates on Thursday.
Investors have been using oil and other commodities as a hedge against the weaker dollar and inflation, helping fuel the market's rally of almost 50 percent since the start of the year.
Concern that tension between Israel and Iran, a major oil exporter, could disrupt supplies from the Gulf region were in part behind oil's climb to a record on Monday.
Iran's Revolutionary Guards had said they would impose controls on shipping in the Strait of Hormuz if the country is attacked.
About 40 percent of seaborne oil trade passes through the strait, according to the US government.
The US State Department on Tuesday criticised comments by an unidentified senior US defence official who told ABC News there was an increasing likelihood Israel would attack Iran over its nuclear programme.
Later on Wednesday, traders will look out for the latest weekly report on US inventories.
The Energy Information Administration report is expected to show a 100,000-barrel fall in crude inventories, a 200,000-barrel fall in gasoline, and a 1.9-million-barrel rise in distillates.For all the latest energy and oil news from the UAE and Gulf countries, follow us on Twitter and Linkedin, like us on Facebook and subscribe to our YouTube page, which is updated daily.
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