FORMER Federal Reserve Chairman Alan Greenspan said oil prices will keep rising as energy companies have invested too little in production and infrastructure to cope with higher demand.

Companies have not been reinvesting enough to keep supply growing in line with demand, Greenspan told a conference sponsored by Deutsche Bank AG in Singapore, according to an investment strategist who attended the event.

Increasing futures-market activity is expanding the aggregate demand for oil because more needs to be held in storage to meet contracts, Greenspan said, Bloomberg News reported.

"There's evidence that fundamentals are pointing to higher prices," said Dariusz Kowalczyk, chief investment strategist at CFC Seymour Ltd in Hong Kong. "Even as demand and supply are in balance, the risks to supply and oil's attraction as an inflation hedge are pulling it higher."

Crude oil rose to a record US$126.98 a barrel in New York on Tuesday on concern that US refiners may fail to meet demand for fuels such as diesel and heating oil. Supplies of distillates in developed countries fell 6.7 percent to 477.6 million barrels in March from a year earlier, according to International Energy Agency estimates. Higher prices of energy and raw materials are fanning world inflation.