Oil rises $1 on supply concerns

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U.S. crude rose $1.21 to $142.18 a barrel by 0215 GMT (3.15 a.m. British time), while London Brent crude gained $1.52 to $142.19.

The International Energy Agency on Tuesday cut its global oil supply capacity forecast by 2.7 million barrels per day (bpd) to 95.33 million bpd by 2012, boosting prices already lifted by tension between Iran and Israel.

Traders also bought crude on the weak dollar, which softened on Tuesday ahead of Thursday's European Central Bank meeting, which is widely expected to conclude an interest rate hike to deal with quickening euro zone inflation.

"The U.S. dollar is an each-way bet and will likely cause some volatility in prices," Mark Pervan, a senior commodities analyst at the Australian & New Zealand (ANZ) Bank, said in a research note.

"On balance, if Iran, Nigeria and Israel can stay out of the news for the rest of the week, traders should take profits," he added.

Oil hit a record $143.67 a barrel on Monday, taking its gains for the year to nearly 50 percent, in part due to concerns that tension between Israel and Iran could disrupt supply from the Middle East Gulf.

Iran's Revolutionary Guards had said it would impose controls on shipping in the Strait of Hormuz should the country be attacked. About 40 percent of all seaborne oil trade passes through the Strait, according to the U.S. EIA.

The U.S. State Department on Tuesday criticised comments by an unidentified senior U.S. defence official who told ABC News there was an increasing likelihood Israel would attack Iran over its nuclear programme.

Adding to supply worries, OPEC President Chakib Khelil said the cartel did not have enough spare capacity to replace Iranian oil if Tehran were to cut exports due to an attack.

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