Instead, the Houston-based company has decided to sell to retailers only the 750,000 barrels a day that it produces at three U.S. refineries in Lake Charles, La., Corpus Christi, Texas and Lemont, Ill., according to a statement late Tuesday.

That will mean that over the next year Citgo will cease distributing gasoline in 10 states and stop supplying some stations in four additional states, Citgo spokesman Fernando Garay said Wednesday.

Chavez has long claimed that parts of Citgo's business produce losses for Venezuela and constitute a subsidy for the U.S. economy.

Oil Minister Rafael Ramirez has also charged that Citgo isn't profitable enough and that its parent, state-owned Petroleos de Venezuela SA, or PDVSA, could at some point sell off some of the company's refineries.

However, in a sign of the apparently lucrative relationship between the two companies, PDVSA announced Wednesday that it has so far earned $400 million in dividends this year from Citgo.

The states where Citgo will stop selling gasoline are: Iowa, Kansas, Kentucky, Minnesota, Missouri, Nebraska, North Dakota, Ohio, Oklahoma and South Dakota. A limited number of stations in Illinois, Texas, Arkansas and Iowa will also be affected.

Venezuela is the world's fifth-largest oil exporter and the U.S. is its top buyer. The United States relied on Venezuela for about 11 percent of its oil supply in 2005.

"There's a pipeline attack in Nigeria, Israel is taking a strong stance and that's adding fuel to the fire, but more than anything it's U.S. gasoline demand holding up and the Iran situation."

Iranian President Mahmoud Ahmadinejad said on Thursday the world's fourth-largest oil exporter would not abandon its right to nuclear technology after Tehran's case was referred back to the U.N. Security Council over its nuclear dispute with the West.

In the world's eight-largest exporter Nigeria, two suspected explosions at a crude oil pipeline operated by Italy's Agip and feeding the Brass oil terminal caused massive oil spills in Nigeria's southern state of Bayelsa, state government officials said on Thursday. Output has already been cut by militant attacks.

Compounding tensions in the Middle East, Israel said on Thursday its naval vessels were in Lebanon's territorial waters and blocking access to ports as part of an offensive launched after Lebanese Hizbollah guerrillas captured two soldiers in a border clash.

And in Asia, North Korea blamed the South for the collapse of their first high-level talks since Pyongyang's missile tests sparked a regional crisis, saying Seoul would "pay a price" for the failure.

The series of real or potential supply threats have helped drive oil's 24 percent rally this year against a background of growing world demand.

FUEL DEMAND GROWTH

U.S. crude oil inventories slid 6 million barrels last week as imports fell nearly a million barrels per day (bpd), a government report said on Wednesday. The drop was five times larger than the 1.2 million barrels forecast among analysts polled by Reuters.

"The dramatic decrease in U.S. inventories is propping up the market and we're seeing an extension of the bullish sentiment which followed the numbers on Wednesday," said Dariusz Kowalczyk, senior investment strategist at CFC Securities in Hong Kong.

A shipping artery in Louisiana was closed for 10 days last month after an oil spill. Though it opened back up before the end of last week, the disruption may have continued to slow cargo deliveries to the region.

Gasoline stocks slipped 400,000 barrels, against a forecast decline of 100,000 barrels, on lower refinery production and as demand from the world's largest oil consumer remained strong.

U.S. motorists, who consume over 40 percent of the world's gasoline, bought 1.7 percent more fuel in the past four weeks compared with a year ago. The data covered the U.S. Independence Day holiday weekend when annual gasoline demand peaks.

Despite near record-high prices, growth in oil demand will rise more quickly through to 2011 than it did in the past decade, the Paris-based International Energy Agency (IEA) said on Wednesday.

The IEA, adviser to 26 industrialized nations, predicted the world would need an extra 1.57 million bpd of oil to fuel economic growth in 2007, up from growth of 1.21 million bpd this year.

The attacks followed a raid by the Hizbullah guerrilla group yesterday, in which eight Israeli soldiers were killed and two captured.

"Geopolitical tensions have stepped up - we are moving on to a new phase in Iran and Israel," Mike Wittner, of the investment bank Calyon, told Reuters.

"In the end, geopolitical risk is about a current supply disruption getting worse or a new one happening."

In other geopolitical concerns weighing on the markets, the Iran nuclear row appeared to be heading to the UN security council, while North Korea walked out of talks with South Korea. A drop in oil inventories in the US also added to worries.

In Nigeria, two suspected explosions at a crude pipeline operated by Agip, a unit of Italy's Eni, caused oil spills, compounding nervousness among oil traders.

Eni denied reports of sabotage and extensive oil spills and said damage would be repaired soon. Royal Dutch Shell has already had to cut Nigerian production by 473,000 barrels a day, almost a quarter of output in Africa's leading oil supplier, because of attacks by rebels.

The Qatari oil minister, Abdullah al-Attiyah, blamed speculators for the rise in oil prices, pointing out that there was no shortage of crude oil in world markets.

"The main thing we see is that there is no shortage in the market at all," he told reporters. "Speculators are using the geopolitical situation to their benefit and we are seeing how the oil prices are reacting."

Qatar is the smallest producer in Opec. The 11-member group has been powerless to stem oil's rally as rising world demand has used up much of the group's reserve production capacity.

Rising US demand is also increasing oil prices. US crude inventories dropped by 6m barrels last week as imports fell, a government report said yesterday.

The drop was five times larger than the 1.2m barrels forecast among analysts. US motorists, who use more than 40% of the world's petrol, bought 1.7% more fuel in the past four weeks compared with a year ago.

The data covered the Independence Day holiday weekend when annual oil demand peaks.

Most analysts thought the spurt in oil prices was likely to be short-lived. Share movements driven by geopolitical events have tended to reverse quickly over the past few years.

"Usually these things tend to calm down again," said Andreas Utermann, the global chief investment officer of Allianz Global Investors, adding that the danger for investors was if some unexpected crisis hit and then deteriorated."

Stock markets around the world fell sharply in May and June as it became clear that US central banks were gearing themselves up for higher interest rates.

The US Federal Reserve is poised for its 18th consecutive rise while the European Central Bank and Bank of Japan have also embarked on monetary tightening campaigns.