Crude futures were gaining ground Tuesday, buoyed by persistent weakness in the dollar and heightened tension between Israel and Iran that some Pentagon officials believe is careening toward a military conflict.

West Texas crude for August delivery was recently trading $2.66 higher at $142.66 a barrel at the New York Mercantile Exchange, and Brent crude was gaining $2.51 at $142.34 a barrel.

Reformulated gasoline is up 5 cents at $3.55 a gallon, heating oil is trading 8 cents higher at $3.98 a gallon, and near-term natural gas is up 17 cents at $13.52 per million British thermal units.

The dollar continued its slide in overnight trading in Asia in Europe, breaching $1.58 against the euro, 105 yen, and testing $2 against the British pound -- all considered major resistance levels.

Oil's High -- Suck It Up

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The upcoming meeting of the European Central Bank has weighed heavily on the dollar over the past two weeks, sending the dollar skidding from $1.53 against the euro on June 14 to nearly $1.60 now. ECB President Jean-Claude Trichet is widely expected to push for a 25-basis-point increase in the ECB's benchmark lending rate at the meeting this week in order to fight signs of inflation.

Also affecting oil markets was a measurable increase in discussion among leading U.S. political figures and the news media about a potential military strike by Israel against Iran.

ABC News reported late Monday evening that a high-ranking official in the U.S. Defense Department believes that Iran is making progress in acquiring enriched uranium, which could be used to build a nuclear weapon. The defense official reportedly said that an Israeli attack against Iranian infrastructure sometime this fall is growing increasingly likely.

John Bolton, the U.S. ambassador to the United Nations, added fuel to the debate in a Monday morning television interview on Fox News, saying that it "makes a lot of sense" for Israel to attack Iran while George Bush still resides in the White House. Bolton said that any country making the case for military action against Iran would need to acquire some degree of U.S. approval to do so, and that Israel has a much better chance of getting that from President Bush than it does from a newly elected president from either political party.

Not affecting oil prices, but important nonetheless, was the latest Medium-Term Oil Market Report from the International Energy Agency, a global energy watchdog group. The IEA slashed its forecasts for global oil demand over the next five years, saying that there are clear signs high oil prices are eating into demand throughout the global economy.

Cramer: Factors Pumping Up Oil Prices

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Interestingly, the IEA said that oil consumption has fallen the most in wealthy economies, which tend to have a higher ratio of consumers who use oil frivolously on consumer items like gas-guzzling SUVs. Demand for oil has not fallen as much in the world's poorer and emerging economies, which tend to allocate more of their oil toward the most essential components of their economies in times when prices are abnormally high.

Although the surprising consumption and demand figures from the IEA weren't making a dent in Tuesday's energy futures markets, the implications of the data were doing damage to oil stocks. The entire integrated oil complex was lower, with

BP

(BP) - Get Report

losing 1.5% at $68.55,

Royal Dutch Shell

(RDS.A)

falling 1.4% at $80.54, and

ConocoPhillips

(COP) - Get Report

and

Exxon

(XOM) - Get Report

both trading fractionally lower.

Oil service stocks are also trading largely to the downside.

Diamond Offshore Drilling

(DO) - Get Report

was losing 0.6% at $138.37,

Global Industries

(GLBL)

was falling 2.2% at $17.53,

Halliburton

(HAL) - Get Report

was edging up to $53.24, and

Nabors Industries

(NBR) - Get Report

was losing 1.6% at $48.42.

The

U.S. Oil

(USO) - Get Report

ETF, which tends to closely track the performance of West Texas crude futures contracts, was recently up 1.1% at $114.83.