Oil fell sharply on Tuesday as dealers anticipated an increase in already robust U.S. crude stockpiles, countering worries over renewed violence against oil workers in Nigeria.

U.S. light crude fell $1.04 to $67.06 a barrel, falling from Monday's peak over $69, on the New York Mercantile Exchange. In London, Brent crude was down 82 cents at $65.34 on the International Petroleum Exchange.

Dealers said they expected a report from the U.S. Energy Information Administration Wednesday to show a build in crude supplies of more than 1 million barrels, adding to a surplus of more than 12 percent over last year.

The increase in stockpiles in the world's largest energy consumer would come as refining companies shut processing units for seasonal maintenance work, and as imports from overseas notched higher, analysts said.

Analysts also expected inventories of gasoline and distillates like heating oil to increase.

The inventory increases countered worries over fresh violence in Nigeria, the world's eighth largest oil exporter.

An armed gang dressed in police uniforms attacked the Nigerian offices of Agip oil company, a unit of ENI, and nine people were killed, the company said.

It was the latest incident in a month-long campaign of violence against oil operators in the OPEC-member country that has already shut more than 220,000 barrels per day of output.

"The news of the attack on Agip's offices in Nigeria took out some of the bearish momentum," said Phil Flynn, analyst at Alaron Trading.

OPEC power Saudi Arabia sought to ease fears of global supply disruptions, offering to pump more oil if necessary.

Saudi Arabia's oil minister, Ali al-Naimi, said world markets were in good shape, but promised that Riyadh would produce more oil, if needed.

He also said the Organization of the Petroleum Exporting Countries was likely to keep output steady when it meets on Jan. 31 in Vienna.

Tension meanwhile mounted over Iran's nuclear ambitions, after U.S. Secretary of State Condoleezza Rice said Monday that Iran should be referred to the United Nations Security Council for possible sanctions.

Iran, the world's fourth-biggest crude exporter, could respond to Western pressure over its nuclear scheme by cutting back daily oil sales of 2.4 million barrels, analysts said.

These factors have pushed prices up 10 percent since the start of the year.

Concerns remained over gas from Russia as it reopened a dispute with Ukraine over taking supplies bound for European customers, while supplies to Georgia only partially resumed Monday, after weekend explosions knocked out a main pipeline.

European gas importers have been scrambling to find alternative ways of powering industry as cuts in Russian supplies dragged into a second week due to freezing weather.

The supply picture varied Tuesday, with Hungary reporting an increase in Russian imports, while Italy said the gap between supply and demand worsened, with Russia deliveries expected to be 8 percent below consumption.