Oil rose on Tuesday (NZT) as Tropical Storm Dolly barrelled into the Gulf of Mexico, stoking concerns of disruptions to US offshore oil and gas production.
US crude settled up US$2.16 at US$131.04 a barrel after concerns about US demand knocked prices from record highs over US$147 a barrel last week. London Brent crude rose US$2.42 to settle at US$132.61 a barrel.
The US National Hurricane Center warned the storm could reach hurricane strength. The US Energy Information Administration said on its current path, Dolly was likely to miss major oil producing areas but could threaten some coastal refineries later in the week.
Shell Oil Co began flying workers from offshore platforms as a precaution, while many other oil companies with installations in the Gulf of Mexico said they were closely watching the storm.
The US Mineral Management Service said four production platforms and one drilling rig had been shut, but that no output had been affected yet.
"Although direct impact on oil infrastructure is expected to be limited, there is the possibility of precautionary rig evacuations," said Jim Ritterbusch, president of Ritterbusch & Associates.
In 2005, hurricanes Katrina and Rita ripped through the Gulf of Mexico - home to more than a quarter of US oil production and around 15% of natural gas output - shutting offshore rigs and coastal refineries.
Further support came from ongoing tensions between the West and Iran over Tehran's nuclear program, which the West fears could be used to make nuclear weapons.
Major powers have given Iran two weeks to answer calls to rein in its nuclear program or face tougher sanctions after talks ended in a stalemate despite unprecedented US participation.
US Secretary of State Condoleezza Rice warned Iran that it faced more sanctions if it defied the two-week deadline.
Concerns that the standoff could lead to a disruption of oil supplies from the OPEC nation have supported crude in its climb to new highs this month.
"With the weekend discussions regarding Iran's nuclear program apparently resulting in another stalemate amid a two-week timeline capable of forcing fresh UN sanctions, a renewed injection of risk premium could characterise much of this week's trade," said Ritterbusch.
Surging demand from emerging economies in Asia have fueled a sixfold rise in oil prices since 2002, but concerns over flagging demand in the United States and other large consumers have helped temper gains.
A Reuters poll of analysts ahead of weekly US goverment inventory data forecast US crude stocks fell by 500,000 barrels last week. US gasoline inventories were forecast to have fallen by 100,000 barrels, with distillate stocks seen up 2.2 million barrels.
