Traders meanwhile digested news out of Nigeria, which showed that Africa's major oil producer expects output to be close to three million barrels per day (bpd) by the end of this year.

New York's main contract, light sweet crude for delivery in September, climbed 26 cents to 74.66 dollars per barrel in electronic deals before the official opening of the US market.

In London, Brent North Sea crude for September delivery won 25 cents to 75.40 dollars per barrel in electronic trading.

Crude futures had closed up more than a dollar in New York and almost two dollars in London on Monday owing to Israel's war on the Hezbollah militia in Lebanon, in addition to news of increased UN pressure on Iran over its nuclear programme.

Traders had weighed up also the impact of a pipeline leak in Russia, which had threatened a major oil supply route from Russia to Europe. The leak has since been repaired.

"Oil looks vulnerable to sharp upside moves as the Middle Eastern arena slips into further uncertainty," Bank of Ireland analyst Paul Harris said on Tuesday.

"A test of 76 dollars a barrel is on the cards" before Wednesday, he added.

Concerns that the high level of tension in the area might harden attitudes in big crude-producing nations in the Middle East caused oil prices to soar to all-time high points above 78 dollars earlier this month.

They have since fallen on profit-taking and news last week of slowing economic growth in the United States.

On Tuesday, Hezbollah guerrillas battled advancing Israeli forces in southern Lebanon, hours after Israel's cabinet gave the army the green light to widen its three-week-old offensive.

In Jerusalem, where Israeli Prime Minister Ehud Olmert rejected mounting international pressure for a ceasefire Monday, a government official said troops had the authority to push up to 30 kilometres (19 miles) into Lebanon.