UPDATE 1-Oil up above $109 on Iran, diesel supply concerns

                                
 (Recasts with Iran nuclear news, updates prices)
                                
 By Luke Pachymuthu
                                
 SINGAPORE, April 8 (Reuters) - Oil rose above $109 on
Tuesday, as Iran said it had started to set up advanced
centrifuges at a uranium enrichment facility, and on fears over
diesel supply disruptions following a European refinery fire.
                                
 U.S. crude for May delivery <CLc1> rose 29 cents at $109.38
a barrel at 0753 GMT, after hitting $109.64, less than 1
percent off a record high hit last month.
                                
 London Brent crude <LCOc1> rose 20 cents to $107.34 a
barrel.
                                
 President Mahmoud Ahmadinejad said on Tuesday that Iran had
started to install 6,000 advanced centrifuges in its
underground Natanz uranium enrichment facility, state media
reported, triggering concerns over Western response to the
news. [nL08684321]
                                
 Finnish refiner Neste Oil <NES1V.HE> said repairs and
maintenance on a diesel unit at its 200,000 barrels per day
(bpd) Porvoo refinery would stretch through May following a
fire on Friday.
                                
 The news pushed prices for London gas oil <LGOJ8>, a
distillate fuel closely related to diesel and heating oil, to a
record of $1,017 a tonne on Tuesday.
                                
 "As we have seen in numerous instances in the past when
there are unexpected refinery problems or geo-political issues
oil prices tends to get a lift," said David Moore, a commodity
strategist at Commonwealth Bank of Australia.
                                
 Diesel is commonly used throughout Europe as a road
transport fuel.
                                
 U.S. Energy Secretary Sam Bodman warned on Monday that U.S.
gasoline pump prices could hit a record of $3.50 a gallon
during the peak summer driving season, and called on OPEC to
lift production. [ID:nN07180229]
                                
 SATURATED OIL MARKET
                                
 But Qatar's oil minister on Tuesday the oil market was
saturated with global inventories at around five-year highs,
and prices were being driven by speculators. [ID:nL083331721]
                                
 Echoing similar sentiment, OPEC Secretary General Abdullah
al-Badri, told an Iranian daily that current oil prices were
"proper" and "fair". [ID:nHOS821572]
                                
 China's oil import growth, one of the main drivers of
increasing world demand, is likely to receive a boost from a
government decision to grant a massive tax rebate on crude
imports to help its oil firms limit heavy refining losses.
[ID:nPEK80730]
                                
 "We have to wait and see how much of an impact this rebate
will have...it may facilitate an increase in oil demand from
China," Moore said.
                                
 The world's third-largest crude buyer after the United
States and Japan wants to avoid raising fuel prices and stoking
inflation.
                                
  A Reuters poll of analysts ahead of weekly U.S. inventory
data due out on Wednesday forecast crude stocks rose 2.2
million barrels in the week to April 4. Distillate stocks were
forecast to show a 1.4 million barrel draw, with gasoline down
2.6 million barrels. [EIA/S]
                                
 Ships along the northern end of the Houston Ship Channel,
which feeds eight refineries in Houston and Texas City, were
stopped by dense fog on Monday morning, adding further support
to prices. [ID:nN07473669]
 (Editing by Ramthan Hussain)