Oil rallies $2 to near $120 on supply worries

NEW YORK (Reuters) - Oil jumped $2 to record highs near $120 a barrel on Tuesday on supply concerns from Nigeria and the North Sea.

U.S. crude rose $1.90 to $119.38 a barrel by 12:18 p.m. EDT (1618 GMT) after hitting an all-time peak of $119.74 earlier. London Brent crude gained $1.80 to trade at $116.23 a barrel, after rising to a record peak of $116.75.

Oil's fresh highs have extended a rally that has seen prices climb more than five-fold since 2002, driven by booming demand from emerging markets such as China that has coincided with long-term supply constraints.

The slumping U.S. greenback, which tumbled to fresh lows against the euro on Tuesday, has also helped boost dollar-denominated commodities like oil and attracted speculative inflows from hedge funds.

"The trend is up and the market didn't break down when it moved lower in the morning, and you have the weak dollar and the supply disruptions are in the mix," said Eric Wittenauer, analyst at Wachovia Securities.

Pipeline attacks in OPEC member Nigeria last week shut 169,000 barrels per day (bpd) of Bonny Light production, forcing Royal Dutch Shell Plc to declare force majeure on crude oil exports.

Nigerian rebels also attacked two Shell oil pipelines in the Niger Delta on Monday.

Management and union officials are in talks to avoid a planned two-day strike at Scotland's Grangemouth refinery, which could force the shut-in of some oil and natural gas production from the North Sea.

Despite the supply worries, officials from oil cartel OPEC insist markets have enough crude.