Oil prices up slightly on Iran nuclear worries

[August 02, 2008]  NEW YORK (AP) -- Oil prices rebounded Friday, briefly jumping more than $3 a barrel after Israel's deputy prime minister reportedly warned that Iran was nearing a "breakthrough" in its nuclear program.

But prices at the pump fell again, with a gallon of regular gas slipping on average just over a penny to $3.898, according to auto club AAA, Oil Price Information Service and Wright Express. Gas is down 5.2 percent from record high of $4.114 a gallon reached July 17, as high prices eat into demand.

Crude prices soared after news reports quoted Israeli Deputy Prime Minister Shaul Mofaz as saying that Iran's nuclear program was poised to make a "major breakthrough" and that his country must be "prepared for every option."

Mofaz, a hawkish former defense minister and military chief, is a top contender to succeed Prime Minister Ehud Olmert, who announced Wednesday that he will resign in September amid a corruption probe.

Mofaz's comments "got everybody excited to buy oil again" on worries that a possible military strike against Iran would plunge the Middle East into another crisis, said Phil Flynn, analyst at Alaron Trading Corp. in Chicago.

"That caused the oil market to pop," Flynn said. "It's putting the focus back on Iran."

Light, sweet crude jumped as high as $128.60 a barrel on the New York Mercantile Exchange, its highest level in nine sessions, before easing back later to $125.95, up 87 cents. Prices fell $2.69 Thursday, and are still down 13 percent from the contract's record high above $147 reached last month.

Oil was also getting a boost as stocks retreated on news that jobs fell for the seventh straight month and that General Motors Corp. had its third-worst quarterly loss ever.

U.S. government data showed employers cut 51,000 jobs in July against an expected loss of 72,000 - but the July unemployment rate rose to 5.7 percent from 5.5 percent in June, a five-year peak and slightly higher than forecast.

In addition, the Institute for Supply Management said its manufacturing index fell slightly from June's reading, but came in better than economists expected.

July car sales figures will also be released Friday, another guiding point for the markets wanting to know where the American economy is heading.

Crude sold off Thursday after the Commerce Department said the country's gross domestic product rose just 1.9 percent in the second quarter despite government tax rebates, and the Labor Department said the number of people seeking jobless benefits rose to the highest level in five years. The disappointing data reaffirmed beliefs that a U.S. economic slowdown will further erode demand for oil products in the world's thirstiest energy consumer. Nymex oil prices have dropped off around $24 a barrel since reaching a record high of $147.27 on July 11.

"Prices will likely correct over the next six months to the $100 to $110 range," said Tetsu Emori, commodities markets fund manager at ASTMAX Futures Co. in Tokyo. "There aren't enough fundamental factors right now pushing prices higher."

Worries about Iran's nuclear ambition have weighed heavily on markets in recent weeks and will likely influence trading next week. A deadline expires Saturday for Tehran to show it will stop expanding its uranium enrichment program, at least temporarily, or face the threat of new U.N. sanctions.

Earlier this week, Iranian officials, including supreme leader Ayatollah Ali Khamenei, pledged to continue the country's nuclear program.

In other Nymex trading, heating oil futures fell about a penny to $3.4505 a gallon while gasoline futures added 2.81 cents to $3.099. Natural gas futures added 24.9 cents to $9.368 per 1,000 cubic feet.

In London, September Brent crude rose 62 cents at $124.60 a barrel on the ICE Futures exchange.

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Associated Press writers Pablo Gorondi in Budapest, Hungary and Alex Kennedy in Singapore contributed to this report.

[Associated Press; By STEVENSON JACOBS]

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