Oil nears $142 on weak dlr, Israel-Iran tensions

06.30.08, 2:18 AM ET

United States - * Oil nears $142 on weak U.S. dollar and growing Israel-Iran tensions

* Iran says will impose controls on a vital Gulf oil route if the country is attacked. (Updates prices, China's CNPC to increase imports)

By Fayen Wong

PERTH, June 30 (Reuters) - Oil rose over $1 to near $142 a barrel on Monday, bolstered by a weak U.S. dollar and continuing tensions between Israel and Iran over Tehran's nuclear programme.

U.S. light crude for August delivery was up $1.68 at $141.89 a barrel in Globex electronic trading by 0558 GMT, within range of the record of $142.99 struck on Friday.

London Brent crude rose $1.57 cents to $141.88.

"The U.S. dollar is down and there are many high-level geopolitical news items, particularly in the Middle East, that are pushing prices up," said Mark Pervan, a senior commodities analyst at the Australian & New Zealand (ANZ) Bank in Melbourne.

"Oil is now a very jittery and news-sensitive market that is running on rumours and concerns of future supply disruptions."

Iran's foreign minister said on Sunday he did not believe Israel was in a position to attack his country over its nuclear programme, while an Iranian general announced plans to prepare 320,000 graves for enemy soldiers.

The comments were the latest in an escalating war of words between the arch-foes that has helped fuel speculation of a possible Israeli attack on Iran, the world's fourth-largest oil exporter. The speculation has helped push oil prices to record highs.

Comments from Iran that it would impose controls on shipping on a vital Gulf oil route if the country was attacked also added to supply jitters.

The Straits of Hormuz, a narrow waterway separating Iran from the Arabian Peninsula, accounts for roughly 40 percent of the world's traded oil flows.

News that top Chinese oil firm CNPC would increase imports of refined oil products in the third quarter to boost supply to the domestic markets also lent support to prices.

Oil prices have jumped more than 45 percent this year, extending a six-year rally, as supply struggles to keep pace with rising demand from emerging economies such as China and India.

Additional support has come from a flood of cash from new investors buying up commodities to hedge against inflation and the weak U.S. dollar, which fell to three-week lows against the euro on Monday.

Analysts said dealers would be eyeing U.S. economic indicators due later on Monday as well as the European Central Bank's interest rates decision on Thursday for further guidance on the U.S. dollar.

U.S economic indicators due Monday include the New York National Association of Purchasing Managers' index for June and a similar report from Chicago, due at 1300 GMT and 1345 GMT respectively. (Editing by Michael Urquhart)