Oil rises to near $120, halting slide

[August 07, 2008]  VIENNA, Austria (AP) -- Concerns that tension over Iran's nuclear program could lead to conflict propelled oil prices upward Thursday to near $120 a barrel, halting a four-week slide.

Light, sweet crude for September delivery rose $1.21 to $119.79 a barrel in electronic trading on the New York Mercantile Exchange by noon in Europe. The contract dropped 59 cents overnight to settle at $118.58 a barrel.

"The market has been ignoring supply-side concerns lately, but it's looking like the world powers will go forward and place more sanctions on Iran," said Victor Shum, an energy analyst with consultancy Purvin & Gertz in Singapore.

The five permanent U.N. Security Council members and Germany agreed Wednesday to pursue new sanctions against Iran, which will probably take months to implement.

Tehran has refused to curb its uranium enrichment and may be trying to run out the clock on the Bush administration in hopes of getting a better offer from a new U.S. president next year, the State Department said.

Iran says it isn't seeking nuclear weapons and won't scale back what it calls a legitimate energy-production program.

Before the rebound, Nymex front-month crude futures had fallen around 20 percent since reaching a record high of $147.27 on July 11.

"The market got oversold," Shum said. "People have been overwhelmingly preoccupied with poor U.S. oil demand."

The U.S. Energy Department's Energy Information Administration said Wednesday that crude supplies rose 1.7 million barrels in the week ended Aug. 1, slightly more than the 1.2 million-barrel increase expected by analysts surveyed by energy research firm Platts.

The EIA said inventories of distillate fuel, which include diesel and heating oil, jumped 2.8 million barrels. The analysts had expected an increase of 2.3 million barrels.

Meanwhile, EIA data showed gasoline stockpiles fell 4.4 million barrels last week, much more than the 1.4 million drop expected by analysts. The big drop in gasoline stocks surprised some oil market traders, but analysts said it likely signals that gas distributors have taken more deliveries from the refiners as the summer driving season enters its last month -- not that U.S. motorists are suddenly ramping up their driving amid recent pullbacks in pump prices.

Lending support to that idea, the EIA said demand for gasoline for the month ended Aug. 1 topped out at about 9.4 million barrels a day, 2.3 percent lower than for the same period last year.

In London, September Brent crude was up $1.54 at $118.54 a barrel on the ICE Futures exchange.

A fire Wednesday on a Turkish section of the Baku-Tbilisi-Ceyhan pipeline -- a major supplier of crude to Western markets -- disrupted the flow of oil and helped support prices.

The overnight blaze forced workers to shut down two valves along the pipeline as a precaution, halting the flow of all oil being sent to Ceyhan terminal from the east. Shipments were not affected.

Still such events usually drive prices upward. But the fire did not "excite any real buying interest," commented trader and analyst Stephen Schork in his Schork Report, adding: "That's bearish."

The U.S.-backed 1,100-mile (1,760-kilometer) pipeline allows the West to tap oil from Azerbaijan's Caspian Sea fields, estimated to hold the world's third-largest reserves, and bypass Russia and Iran. The pipeline can pump slightly more than 1 million barrels of crude oil per day, more than 1 percent of the world's daily crude output.

In other Nymex trading, heating oil futures rose more than 3 cents to $3.2717 a gallon (3.8 liters), while gasoline prices gained over 4 cents to $2.99 a gallon. Natural gas futures rose by nearly 9 cents to $8.862 per 1,000 cubic feet.

[Associated Press; By GEORGE JAHN]

Associated Press Writer Alex Kennedy contributed to this report from Singapore.

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