Oil: Price reaches US$76 a barrel

Oil climbed back to US$76 on Tuesday as Israel advanced deeper into Lebanon, ignoring calls for an end to fighting, 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 US$78.40 a barrel record high.

At 1710 GMT London Brent crude was up US$1.05 at US$76.20 and US crude was up 75 cents at US$75.15.

North Sea Brent has built a rare premium to US oil because European markets are more directly affected by real and feared supply disruptions in Nigeria, Russia and the Middle East.

"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 fighting erupted when Hizbollah snatched two Israeli soldiers, Israel's security cabinet agreed to step up its offensive, entailing a ground sweep 6-7 km (4 miles) into Lebanon, a political source said. .

"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 Japan's Mitsubishi Corp 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.

Iraq has been struggling in vain to lift its exports to the 2 million per day level seen before the US-led invasion in March 2003. Sabotage is widespread and the northern oil pipeline has been at a standstill for months at a time. .

A stand-off over Iran's nuclear programme also supported prices. President Mahmoud Ahmadinejad insisted on Iran's right to produce nuclear fuel, responding to a UN resolution demanding that Tehran stop its atomic work by Aug 31.

The dispute has helped lift oil 21 per cent this year.

"The best-case scenario... would be that negotiations continue and become more protracted, while the worst-case would be that things turn nastier. Whatever it is, it doesn't seem that there will be a quick solution," Nunan said.

A more than 14 per cent surge in US natural gas prices on Monday following several nuclear plant outages and a nationwide heatwave also helped lift the energy complex, possibly shifting some power generation demand back to oil products.

Deutsche Bank analyst Michael Lewis said traders will be watching natural gas storage data due out on Thursday because of extreme heat in the United States.

"There has been industry demand for gas because it was cheap relative to the rest of the complex," he said.

US oil stocks date will be released at 1430 GMT on Wednesday. US crude stocks are forecast to fall by 1 million barrels last week, a Reuters poll found. Analysts see a petrol stocks dwindling by 1.7 million barrels, with more than a month go to before the summer driving season ends. .

Europe's biggest refinery, Shell's Pernis plant in Rotterdam, is still trying to bring back full petrol production after a technical failure on July 14, a spokesman said. It also suffered a fire on July 29 after a naphtha leak.

"They're pushing the plants so hard, (refining problems) are not going to get any better," said SGCIB analyst Deborah White. (additional reporting by Yaw Yan Chong in Singapore and Barbara Lewis in London)

- REUTERS