Oil rises as eyes back on Iran-Israel row

SINGAPORE (Reuters) - Oil rose on Tuesday after slipping from a record above $143 a day ago, as tension surrounding Iran's nuclear program returned to focus and outweighed concerns over eroding U.S. demand.

U.S. crude rose 39 cents to $140.39 a barrel by 0201 GMT, while London Brent crude rose 76 cents to $140.59.

Fears of oil supply and flow disruption in the Middle East, as the Iran-Israel row over Tehran's nuclear developments escalates, had helped pushed oil to a $143.67 peak on Monday.

"The market has been worried about the tensions involving Iran and that remains a supportive factor for the oil price," said David Moore, a commodities analyst at the Commonwealth Bank of Australia in Sydney.

In a war of words between the Iranian and U.S. military, Iran's Revolutionary Guard said Tehran would impose controls on shipping in the Middle East Gulf and Strait of Hormuz if it were attacked.

The U.S. Navy's Fifth Fleet said the United States and its allies would not allow Iran to hamper shipping in the Gulf.

Roughly 40 percent of the world's traded oil moves through the narrow waterway separating Iran from the Arabian Peninsula.

The ongoing dispute in the Middle East countered concerns over falling demand in the world's top oil consumer, the United States, as the impact of soaring fuel costs sets in.

The U.S. Energy Information Administration revised downward U.S. April oil demand by 863,000 barrels per day (bpd) to 19.77 million bpd -- 3.9 percent below year-ago levels.

The revision, which showed April demand was the lowest for the month since April 2002, came even before gasoline prices surged to new records in June.

Oil prices have jumped around seven-fold since 2002 as part of a broader commodities rally sparked by surging demand from emerging economies like China and India, but have also driven inflation higher around the world.

On Monday, official data showed that euro zone inflation leapt to a record 4.0 percent in June, cementing expectations that the European Central Bank will raise interest rates when it meets on Thursday.

Analysts said the move would drive the U.S. dollar lower and trigger more cash injections into crude from investors seeking to hedge against the slumping U.S. currency.

Speculative hedge fund inflows have already helped lift oil prices more than 40 percent higher this year.

Saudi Oil Minister Ali al-Naimi reiterated his country's position that oil prices were being driven mostly by speculation and said the OPEC kingpin was prepared to supply all the oil its customers needed.

But the heads of some of the biggest oil companies said at an oil conference in Madrid that fundamentals, not investor flows, were the main driver of prices.

On Wednesday, traders will be eyeing weekly U.S. oil inventory data, which was expected to show a drop in crude stocks and a build in distillates and gasoline for the week ending June 27.

(Reporting by Chua Baizhen, Editing by Michael Urquhart)

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