LONDON, July 18: Oil prices rose on Tuesday, but remained below recent record peaks, as Israel launched more heavy air raids on Lebanon in its continuing offensive against the militant Hezbollah group, dealers said.

New York's main contract, light sweet crude for delivery in August, won 45 cents to $75.75 per barrel in pit trading. The contract had hit a record $78.40 last Friday.

In London, Brent North Sea crude for September delivery added 45 cents to $76.37 per barrel in electronic deals. Brent had on early Monday hit a peak of $78.18 in electronic trading as Israel pounded Lebanon.

But crude futures then hit reverse gear following a report that Israel's offensive in Lebanon could be over within days.

In Monday's trading, London Brent plunged $2.06 while New York crude plunged $1.73.

“Oil prices are volatile at high levels, with Israel's dispute with Lebanon the main market focus,” said Sucden analyst Michael Davies.

“Newswire reports of an imminent end to the conflict resulted in a sharp fall in crude oil futures” on Monday, he added.

Israel rejected calls for a ceasefire Tuesday as it pounded Lebanese army barracks and flattened homes on the seventh day of an assault that has killed at least 240 people and sent tens of thousands fleeing for their lives.

Dealers said that crude oil prices would likely continue to rise before the conflict was resolved.

“I think the market would want prices to go to $80 a barrel before this situation is over,” said Tony Nunan of Mitsubishi Corp's international petroleum business in Tokyo.

Crude prices had spiked after Israel launched a wide military offensive across Lebanon last Wednesday, touched off by attacks on the Jewish state by the Hezbollah militant Islamic group and the abduction of Israeli soldiers.

“If it spreads to the other countries, it will be a disaster for oil prices,” Nunan said.

“The biggest probability is that Iran will be affected as it supports Hezbollah.” Iran and Syria, closely linked to Hezbollah, could be drawn into the fray should Israel expand its offensive.

Davies added: “In what remains a highly fluid and unpredictable situation there remains considerable upside risk to oil prices in our view.” Analysts are already concerned that Iran, the world's fourth-largest crude producer, could cut exports if it is hit with sanctions over its nuclear programme.

The deadly fighting between Israel and Hezbollah in Lebanon has postponed the United Nations Security Council's consideration of a draft resolution that would demand a halt to Iran's sensitive nuclear fuel work.

—AFP