Oil Rises From Six-Week Low on Tropical Storm, Iran's Nuclear

By Gavin Evans

July 21 (Bloomberg) -- Crude oil rose from a six-week low in New York as a storm heads toward Mexico and tensions with Iran is poised to escalate after the world's fourth-largest oil producer resisted demands that it suspend nuclear research.

U.S. forecasters said there is a 29 percent chance the storm may strengthen to a hurricane after it enters the Gulf of Mexico, which accounts for more than a quarter of U.S. oil output. Iran risks ``further isolation'' if it doesn't respond in two weeks to the United Nations offer of economic aid in return for halting uranium enrichment, U.S. officials said July 19.

``The National Hurricane Center shows Tropical Storm Dolly crossing the Gulf of Mexico toward the southernmost part of Texas,'' Andrew Lipow, president of Houston-based Lipow Oil Associates LLC, said in a report. ``I would expect some delays in loading and shipping crude from Mexico to the U.S.''

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 $129.66 at 11:05 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 dropped 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's Call

Iran snubbed Western efforts to get it to suspend nuclear enrichment at international talks in Geneva on July 19, setting the stage for new sanctions if the Islamic republic doesn't respond to an existing proposal in two weeks.

``We did not get what we were looking for,'' European Union foreign policy chief Javier Solana said at a press conference following four hours of talks with Iran's top nuclear negotiator, Saeed Jalili.

The dispute with Iran ``has become a perpetual sticking point in the background of the crude market,'' said Gerard Burg, the energy and minerals economist at National Australia Bank in Melbourne. The dispute is like ``two rams butting up against each other. Neither one really wants to yield,'' he said.

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.

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.

Brent Oil

Brent crude oil for September settlement rose as much as 88 cents, or 0.7 percent, to $131.07 a barrel on London's ICE Futures Europe exchange. It traded at $130.85 at 11:05 a.m. in Singapore.

New York oil prices have gained 35 percent this year as the Iranian dispute 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.

Still, prices have plunged $17, or 12 percent, from the record $147.27 a barrel reached on July 11. While signs of weakness in the U.S. economy played a role, the pace of the decline may reflect investor concern at Petroleos Mexicanos offering oil ``several years'' into the future at current prices, Burg said.

Rising demand outside Europe and the U.S. and the threat of supply disruption from hurricanes will keep oil prices ``in triple-figures for the foreseeable future,'' he said.

Hurricane Season

The North Atlantic hurricane season runs June through November. September is historically the busiest month for storms and hurricanes.

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