Oil rises, tops $125 a barrel on supply worries

[July 28, 2008]  TOKYO (AP) -- Oil prices rebounded Monday on comments by Iran's president suggesting a significant increase in the country's nuclear program, but worries about the faltering U.S. economy and crude demand continued to weigh on futures.

By midday in Europe, light, sweet crude for September delivery rose $1.78 to $125.04 a barrel electronic trading on the New York Mercantile Exchange.

The contract fell $2.23 to settle at $123.26 a barrel on Friday -- oil's lowest point in weeks -- as investors questioned whether crude has cooled enough to reflect a serious deterioration in demand.

Meanwhile, a national survey shows average gas prices in the United States have dropped a fraction below the $4 mark.

The average price of regular gasoline at self-serve stations was $3.996 a gallon Friday. Mid-grade was $4.13 a gallon and premium went for $4.24. That's according to the Lundberg Survey of 7,000 gas stations nationwide, released Sunday.

Prices are at their lowest level since May 16 and are an average of 11.7 cents less per gallon than two weeks ago. Still, the survey showed the average U.S. price for gas is $1.11 higher than it was a year ago.

Iranian President Mahmoud Ahmadinejad's announcement on Saturday that Iran now possesses 6,000 centrifuges raised concerns about an increase in tensions between Western powers and OPEC's second-largest producer over its nuclear program.

The higher number, which is double the 3,000 uranium-enriching machines Iran had previously said it was operating, is certain to further rankle the United States and others who fear Tehran is intent on developing weapons.

"The comments by the Iranian president are a reminder that the Iranian situation remains fluid," said Victor Shum, an energy analyst with consulting firm Purvin & Gertz in Singapore.

In Nigeria, eight foreign oil workers who were kidnapped at gunpoint by six unidentified men in a speed boat on Saturday were released unharmed hours later, according to a Nigerian military spokesman. The abduction highlighted the risks of operating in the African nation, a major supplier to the U.S. Earlier in the week, Nigerian militants threatened to blow up pipelines in the region within a month.

"These events really remind the market that the geopolitical risks regarding Nigeria and Iran remain," Shum said. "Overall, the market has weakened due to concerns over the faltering U.S. economy and slackening oil demand in the U.S., but supply side risks will still provide a high floor for pricing."

Analysts said key data to be released this week in the United States would provide clues about how the U.S. economy would shape up during the second half of the year and help determine which way the oil market would move.

Among the data the market will be watching are gross domestic product for the second quarter which is to be released Thursday as well as July auto sales and the July employment report, both due out on Friday.

The magnitude of the sell-off over the past two weeks is stark. Crude has fallen in seven of the last nine sessions, and is down more than 16 percent from its peak above $147 a barrel earlier this month. Still, prices remain about 65 percent higher than at this time last year.

In other Nymex trading, heating oil futures rose 4.3 cents to $3.5659 a gallon while gasoline prices added 4.02 cents to $3.0725 a gallon. Natural gas futures added 15.6 cents to $9.240 per 1,000 cubic feet.

In London, Brent crude for September delivery rose $1.78 to $126.30 a barrel on the ICE Futures exchange.

[Associated Press; By PABLO GORONDI]

Associated Press writer Gillian Wong in Singapore contributed to this report.

Copyright 2008 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.