CRUDE oil has traded near $US144 a barrel in New York on concern that a standoff over Iran's nuclear program may lead to a military conflict, disrupting supplies from the Middle East.

Iran signalled that it would continue its uranium enrichment program, giving a negative response to the international community's offer a day after positive talks with the European Union, the Financial Times reported on its website yesterday. Oil reached a record $US145.85 on July 3 on speculation any attack on Iran might disrupt exports from OPEC's second-biggest producer.

"The concerns for an attack are quite high and clearly the ramifications for a potential attack is a key driver for prices," Gerard Burg, energy and minerals economist at National Australia Bank in Melbourne, said. "Prices have been driven most notably by security-of-supply issues."

Oil's 50% gain this year is causing consumer prices to surge and crimp profits for airlines as costs rise. Korean Air Lines, South Korea's largest carrier, said yesterday it would report a loss for the second quarter because of a surge in jet fuel prices.

Iran's nuclear policy had not changed, state news agency IRNA reported on Sunday, citing Iranian Government spokesman Gholam-Hossein Elham a day after the country's response to proposals on its nuclear work.

The Government in Tehran had prepared and presented its reply "with a focus on common ground and a constructive view", Iran state television cited Saeed Jalili, secretary of Iran's Supreme National Security Council, as saying in a telephone call with European Union foreign policy chief Javier Solana.

Iran would close the Straits of Hormuz, through which the bulk of Middle-Eastern oil is shipped, if the country was attacked, state-run Fars News Agency reported yesterday, citing a military commander.

"All countries should know that if Iran's interests in the region are ignored, it is natural that we will not allow others to use" the waterway, Fars cited Armed Forces Chief of Staff Hassan Firouzabadi as saying.

The Straits of Hormuz, onto which Iran faces, is used to channel 20% of the world's oil supply. Other Middle-Eastern producers that use the straits to ship oil include Saudi Arabia, the world's biggest oil producer, Iraq and Kuwait.

An attack on Iran would "provoke an unimaginably fierce response" and "oil prices would climb to unpredictable records", Oil Minister Gholamhossein Nozari said, according to the Oil Ministry's official news agency, Shana, yesterday.

US President George Bush said the US would keep pressing Iran to stop enriching uranium. Iran must heed "the just demands of the world to verifiably suspend its enrichment program", Mr Bush said from Toyako, Japan.

European governments have joined the US, Russia and China in offering economic and technology incentives in exchange for Iran suspending work on developing material that can be used to build a nuclear weapon or fuel a nuclear power reactor.

Iran has said it is developing nuclear technology to generate electricity.

The fewest Americans in three years were expected to have travelled over the July 4 weekend as record petrol prices and a slowing economy forced consumers to cut spending, said AAA, the largest US motoring group. The number of people taking trips of at least 80 kilometres from home over the holiday weekend would fall 1.3% to 40.5 million, AAA said.

Chakib Khelil, who heads the Organisation of the Petroleum Exporting Countries, said yesterday he did not expect prices to fall soon because of "big demand" in India and China.

Record oil prices weren't related to supply and they had surged mostly because the "US Federal Reserve lowered interest rates to boost the American economy, which weakened the dollar", said Mr Khelil, who is also Algeria's oil minister.

French President Nicolas Sarkozy said the leaders of the Group of Eight major industrial nations meeting in Japan should encourage oil-producing countries to raise output to prevent an economic slowdown.

"Oil is overpriced relative to the other commodities, but no one is calling the top," said John Lee, principal of Mau Capital Management, yesterday. "The longer oil stays above $US130 a barrel, the less likely it will drop below $US100 a barrel."

BLOOMBERG