Oil Rises From Six-Week Low as Iran Resists UN Nuclear Proposal

By Gavin Evans

July 21 (Bloomberg) -- Crude oil rose from a six-week low in New York on speculation diplomatic tensions with Iran may escalate after the world's fourth-largest oil producer resisted United Nations demands that it suspend nuclear research.

Iran risks ``further isolation'' if it doesn't respond in two weeks to the UN offer of economic aid in exchange for a temporary halt in uranium enrichment, U.S. officials said July 19. Oil also rose after U.S. forecasters said there is a 29 percent chance a storm approaching Mexico may strengthen to a hurricane after it enters the Gulf of Mexico.

The dispute with Iran ``has become a perpetual sticking point in the background of the crude market,'' said Gerard Burg, energy and minerals economist at National Australia Bank in Melbourne. ``What happens if Iran shuts the Straits of Hormuz?''

Crude oil for August delivery rose as much as $1.25, or 1 percent, to $130.13 a barrel on the New York Mercantile Exchange. It was at $129.78 at 7:50 a.m. in Singapore.

The contract fell 41 cents, or 0.3 percent, to settle at $128.88 on July 18, the lowest close since June 5. Prices fell 11 percent last week, the most in more than three years, on signs of slowing global economic growth and faltering U.S. fuel demand.

Iran, the second-largest producer in the Organization of Petroleum Exporting Countries, borders the Straits of Hormuz and has in the past threatened to close the waterway carrying about a fifth of the world's oil deliveries.

Impasse

Four hours of talks between officials in Geneva on July 19 were a ``step forward'' in the dispute, Iranian President Mahmoud Ahmadinejad said yesterday. Negotiators ``did not get what we were looking for,'' European Union foreign policy chief Javier Solana said after the talks.

The UN has already imposed three sets of sanctions on Iran in an attempt to halt nuclear research the U.S. and Israel believe will be used to make weapons.

The dispute is like ``two rams butting up against each other,'' National Australia's Burg said. ``Neither one really wants to yield'' and there is no certainty of a resolution, or action from the UN, in two weeks time, he said.

New York oil prices have gained 35 percent this year as the dispute has added to concerns about supplies from the world's largest producing region. Prices also rose as the falling U.S. dollar, weak global equity markets and supply disruptions in the North Sea and Nigeria encouraged investors to buy the commodity.

Brent crude oil for September settlement rose 88 cents, or 0.7 percent, to $131.07 a barrel on London's ICE Futures Europe exchange. It was at $130.20 a barrel at 7:23 a.m. in Singapore.

Tropical Storm

The northern Gulf of Mexico accounts for about 25 percent of U.S. oil production. Tropical Storm Dolly's projected path over the tip of the Yucatan Peninsula takes it north of Campeche Bay, where Petroleos Mexicanos produces about 1.07 million barrels of oil a day.

Dolly will cross the peninsula today, and may strengthen again as it crosses the gulf on a path that may take it toward the Mexico-Texas border, the U.S. National Hurricane center said. There is a 43 percent chance it will remain a storm, with wind speeds between 39 and 73 miles an hour and a 12 percent chance it will dissipate before making land a second time around July 24.

To contact the reporter on this story: Gavin Evans in Wellington at gavinevans@bloomberg.net