Oil Rises a Second Day on Halt to Dollar's Gains, Iran Concern

By Grant Smith

July 25 (Bloomberg) -- Crude oil rose as the U.S. dollar snapped a three-day rally, bolstering the appeal of commodities, and as supply concerns persisted in Iran and Nigeria.

Commodities such as oil and gold drew investors seeking an inflation hedge when the U.S. currency weakens. Iran, second- largest Middle East producer, may have to be forcibly prevented from acquiring nuclear technology, an Israeli general said. In Nigeria, militants threatened to attack major oil pipelines in response to claims they took payouts from the government.

``U.S. economic data released yesterday doesn't favor a Fed rate hike in the near term, which could mean more dollar weakness and positive sentiment on commodities,'' said Harry Tchilinguirian, senior analyst at BNP Paribas SA in London. ``Any build in geopolitical tension in Nigeria or Iran on top of tight fundamentals will also be supportive.''

Crude oil for September delivery gained as much as $1.02, or 0.8 percent, to $126.51 a barrel in electronic trading on the New York Mercantile Exchange. It was at $126.20 a barrel at 12:36 p.m. London time. Yesterday, oil rose $1.05, or 0.8 percent, to settle at $125.49 a barrel. Futures are up 66 percent from a year ago.

Oil prices have fallen more than $20 a barrel from a $147.27 record on July 11 on signs of falling demand in the U.S. The amount of petroleum products supplied from refiners dropped for a third week to 19.9 million barrels a day last week, the lowest since January 2007. Crude stockpiles have dropped 7.3 percent in the past 10 weeks.

The dollar slipped to $1.5722 against the euro at 10:16 a.m. in London after touching a two-week high yesterday, and to 106.92 yen after reaching its highest in a month yesterday.

Iran Exports

Iran, which produced about 3.85 million barrels of oil a day last month, has warned it may blockade the Strait of Hormuz, the export channel for a quarter of the world's crude, if it's attacked. The country has the second-biggest proved oil reserves and is the second-biggest producer in the Organization of Petroleum Exporting Countries.

``We all realize, both the Americans and us, that all options must be prepared,'' Israeli Lieutenant-General Gabi Ashkenazi said in an interview from Washington on Israel Radio. ``There is no doubt that diplomacy must be given priority.''

``You've got these geopolitical risk factors of a possible strike on Iran by Israel and the intransigence of Iran on the negotiations,'' said Anthony Nunan, the assistant general manager for risk management at Mitsubishi Corp. in Tokyo. ``That really keeps a fire under the market.''

Brent Crude

Brent crude oil for September settlement rose as much as $1.07, or 0.9 percent, to $127.51 a barrel on London's ICE Futures Europe exchange. It was at $126.99 a barrel at 12:36 p.m. London time. The contract rose $1.15, or 0.9 percent, to settle at $126.44 a barrel yesterday.

The Movement for the Emancipation of the Niger Delta, a Nigerian militant group, threatened on July 23 to attack a pipeline that feeds two of the country's four refineries.

The group, also known as MEND, disputed claims by Nigerian National Petroleum Corp. head Abubakar Yar'Adua in Nigerian newspapers that it took millions of dollars in payouts for allowing repairs to the Chanomi pipeline. The pipeline was attacked in February 2006 and repairs were completed earlier this year.

The country's main blue-collar oil workers' union will hold off on resuming a strike over rising fuel costs before planned talks with government officials set for July 29, the group's president said today.

To contact the reporter on this story: Grant Smith in London at gsmith52@bloomberg.net