Oil prices rose slightly on Thursday, as Libya said it would halt fuel supplies to key energy client Switzerland amid a diplomatic row between the two countries.

Libya is a member of the Organization of Petroleum Exporting Countries, the cartel that supplies about 40 per cent of the world's crude oil.

Crude futures were meanwhile rising a day after slumping by about USD four a barrel after a bigger-than-expected increase in US gasoline reserves amid weaker demand in the United States, the world's biggest energy consumer.

"Given the huge fall recently, there has been increasing talk the oil prices may have peaked," said Sucden analyst Michael Davies.

New York's main contract, light sweet crude for September delivery, rose by 66 cents to USD 125.10 a barrel in electronic deals today.

Brent North Sea crude for September delivery climbed 58 cents to USD 125.87 in early London trading.

Libya said yesterday that it would halt supplies transported to Switzerland by ships operated by the Libyan national maritime transport company, after last week's brief detention in Geneva of Hannibal, a son of Libyan leader Moamer Kadhafi.

Oil transported by commercial vessels would not be affected.

A joint statement by the national maritime transport company and the port authority threatened further, unspecified reprisals and said Swiss-flagged ships had been banned from entering Libyan ports.

The statement warned of "new escalatory measures" against Switzerland and demanded that Bern "closes within the next few hours the case it fabricated" against Hannibal.