Oil steadies near $141 on supply concerns and weak dollar

LONDON (Reuters) - Oil steadied near $141 a barrel on Wednesday, within sight of a record high, boosted by forecasts global supply will lag demand and further weakness in the dollar.

Tension between Iran, a major oil exporter, and Israel also lifted prices, and analysts said that could remain supportive for the rest of the week ahead of the U.S. Independence Day holiday in the United States.

"There could be short-covering as Iranian-Israeli tension means few will want to go short into the long weekend," said Mike Wittner, analyst at Societe Generale.

U.S. crude rose 4 cents to $141.01 a barrel by 12:22 p.m. British time, while London Brent gained 50 cents to $141.17. U.S. crude hit a record high of $143.67 on Monday.

Adding to concern about supply, the International Energy Agency on Tuesday cut its global oil supply forecast for the next five years, signalling little relief from high oil prices.

The weak dollar also supported crude. The euro extended earlier gains against the dollar to hit a two-month high on Wednesday as traders anticipated the European Central Bank would raise interest rates on Thursday.

Investors have been using oil and other commodities as a hedge against the weaker dollar and inflation, helping fuel the market's rally of almost 50 percent since the start of the year.

Concern that tension between Israel and Iran, a major oil exporter, could disrupt supplies from the Gulf region were in part behind oil's climb to a record on Monday.

Iran's oil minister said Tehran will remain a reliable source of supply but will respond if threatened.

"Iran has been always a reliable source of supply to the market, and remains as a supplier forever," Gholamhossein Nozari said on Wednesday at an energy conference in Madrid.

"If there would be any kind of activity of any sort, Iran is not going to be quiet and is going to react, and nobody could imagine what would be the reaction of Iran."

Iran's Revolutionary Guards had said they would impose controls on shipping in the Strait of Hormuz if the country is attacked.

But the U.S. Navy's Fifth Fleet said on Wednesday the United States will not allow Iran to block the Gulf. About 40 percent of seaborne oil trade passes through the strait, according to the U.S. government.

Later on Wednesday, traders will look out for the latest weekly report on U.S. inventories.

The Energy Information Administration report is expected to show a 100,000-barrel fall in crude inventories, a 200,000-barrel fall in gasoline, and a 1.9-million-barrel rise in distillates.

(Additional reporting by Chua Baizhen and Barbara Lewis, editing by William Hardy)