"Fair value is probably not too far from these levels," said Emanuele Ravano, head of portfolio management at PIMCO. "If you look at the longer term factors there is still clearly demand in elasticity and poor infrastructure."

High prices have had little effect on the fastest oil demand growth in a generation this year, while concern of potential supply disruptions as oil producers pump at full capacity has fed price gains.

Supply anxiety is building ahead of the Northern Hemisphere winter, when demand for heating oil surges. Inventories of crude and distillates in the world's top energy user, the United States, are running as much as four percent below last year.

"It looks like the market is convinced we need to catch up for the winter and that because of the slow recovery in the Gulf of Mexico, we have lost valuable time," said Phil Flynn, analyst at Alaron Trading in Chicago.

In the U.S. Gulf of Mexico, about 453,000 barrels per day, or 27 percent, of oil output remains shut, the U.S. Minerals Management Service said Tuesday.

U.S. consultancy PIRA Energy estimates at least 40 million barrels equivalent of oil and gas will be deferred by Hurricane Ivan.

PIRA said it calculates 17 million barrels of oil, four million barrels of natural gas liquids and 110 billion cubic feet of natural gas will be shut in by the hurricane.

The estimate includes an assumption about Ivan losses in the rest of October and into November.

U.S. DATA

Dealers will now look to U.S. oil inventory data, due out Wednesday, to gauge how comfortable oil supplies are in the weeks approaching winter.

A revised Reuters poll of 10 analysts predicted on average a fall in distillate stocks - including heating oil, the main winter fuel in the Northeast of the country - by 900,000 barrels and a drop in gasoline stocks by 600,000 barrels.

The weekly report by the Energy Information Administration was expected to show crude stocks rising in the week to Oct. 1 by 2.2 million barrels from the week earlier.

Oil prices had eased Monday after Nigerian rebels withdrew a threat to target the country's over 2.3 million bpd of oil production facilities, but concerns lingered over the OPEC member's stability in the near term.

Policymakers around the globe are watching the price of crude oil warily to see whether record highs will threaten world economic recovery.

A top White House economic adviser said this week the current surge in price does not pose a major threat to the U.S. economy.

Council of Economic Advisers Chairman Gregory Mankiw said every $10 increase in the cost of the barrel of crude cuts gross domestic product growth by just one-third to one-half a percentage point over a year or two.

"Such a decline would be an unwelcome headwind for the continuing recovery but it would not reverse the upward trajectory that we've been on," Mankiw told a conference.