Crude oil back above $130 a barrel

[July 21, 2008]  SUNNYVALE, Calif. (AP) -- Oil prices rose back above $130 a barrel Monday on concerns that the threat of new sanctions against Iran over its nuclear program may escalate tensions in the oil-rich Middle East.

A slightly weaker dollar and concerns about a storm in the Gulf of Mexico also contributed to higher prices.

By midday in Europe, light, sweet crude for August delivery was up $1.73 to $130.61 a barrel in electronic trading on the New York Mercantile Exchange.

Last week, Nymex crude fell more than $18 from a trading record of $147.27 hit on July 11. The contract settled at $128.88 on Friday, down 41 cents.

In London, September Brent crude rose $1.67 to $131.86 a barrel by midday on the ICE Futures exchange.

Talks on Saturday ended with Iran stonewalling Washington and five other world powers on their call to freeze uranium enrichment. In response, the six gave Iran two weeks to respond to their demand, setting the stage for a new round of U.N. sanctions.

The U.S. sent Undersecretary of State William Burns to the talks in hopes the first-time American presence would encourage Tehran into making concessions. But the talks' lack of progress may lead to "further isolation" for Iran, State Department spokesman Sean McCormack said Saturday.

Iran state radio on Sunday quoted President Mahmoud Ahmadinejad as saying the talks were "a step ahead."

"The talks didn't resolve the problem of Iran's nuclear program, and that has been a factor in prices ticking higher today," said David Moore, a commodity strategist with Commonwealth Bank of Australia in Sydney. "Part of the reason prices had fallen recently was on the expectation a deal could be made there."

The U.S. dollar fell slightly against the euro and the Japanese yen on Monday, another cause for investors to buy oil futures.

The euro rose to $1.5884 from the $1.5843 it bought in New York late Friday, while the dollar fell to 106.59 Japanese yen from 106.89 yen on Friday.

Buying oil and other commodities gives investors a hedge against inflation and a weakening dollar. When the dollar gains ground, however, it usually helps push down oil prices.

Prices also rose Monday on concerns that Tropical Storm Dolly may disrupt oil operations in the Gulf of Mexico, Moore said.

The storm drenched Mexico's Yucatan Peninsula and was expected to reach the Gulf of Mexico Monday afternoon packing sustained winds near 50 mph.

"Over the next 12 to 18 months we expect prices to fall on demand side adjustments to the high prices," Moore said. "But there are certainly chances for short-term spikes with issues such as Iran or storms."

In other Nymex trade, heating oil futures rose 4.17 cents to $3.7332 a gallon while gasoline prices rose 3.71 cents to $3.2080 a gallon. Natural gas futures rose 16.7 cents to $10.737 per 1,000 cubic feet.

[Associated Press; By PABLO GORONDI]

Associated Press writer Alex Kennedy in Singapore contributed to this report.

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