Oil rose more than $1 on Monday as Iran vowed to pursue its nuclear programme, inviting possible sanctions against the world's fourth largest oil exporter. Iran's supreme leader on Monday said the Islamic Republic would press on with its nuclear work. Iran had said it would respond formally by Tuesday to Western incentives to halt nuclear enrichment.
"The bottom line is that Iranians will not accept the proposal, which means the UN will be talking about sanctions," said Adam Sieminski, chief energy economist at Deutsche Bank. "We could be in for a period of oil-price strength now, after a week and a half of declines."
US crude settled $1.31, or 1.8 percent, higher at $72.45 a barrel. London Brent crude rose $1.08 to $73.38.
The United Nations Security Council has demanded that Iran halt its nuclear work by a second deadline of August 31, raising the prospect of punitive action by the UN
"The market is saying, my God, there are going to be sanctions and it may involve oil," said Deborah White, oil analyst at Societe Generale.
The United States, Russia, China, France, Britain and Germany have offered incentives for Iran to suspend enrichment. Tehran, which insists its nuclear aims are purely civilian, shows no sign of accepting the package.
Supreme Leader Ayatollah Ali Khamenei, Iran's highest authority, was quoted on state television on Monday as saying Iran would pursue its nuclear plans.
"The Islamic Republic of Iran has made its decision and, in the issue of nuclear energy, will continue its path powerfully ...and it will receive the sweet fruits of its efforts," he said.
The West accuses Iran of seeking to develop atomic weapons under cover of a civilian nuclear programme. Tehran denies it seeks to make bombs, saying it only wants to make electricity.
Tehran at times has hinted it may use its oil exports as a weapon to defend itself in the row. Officials have said sanctions will harm the West more than Iran by sending oil prices even higher.
US President George W. Bush on Monday urged the international community to act at the United Nations to curb Iran's nuclear ambitions and said there has to be a "consequence" for Tehran's actions.
US crude has risen about 18 percent this year on concern the nuclear row could cut Iran's exports of more than 2 million barrels per day and as violence in Nigeria reduced supplies.
In Nigeria, up to 10 militants were killed in a shootout with troops when they ran into a military convoy in the oil-producing Niger Delta, authorities said on Monday.
Royal Dutch Shell, Nigeria's largest foreign oil producer, is losing a total of 495,000 barrels of oil equivalent per day of output it operates in Nigeria, largely due to militant attacks on installations.
Oil traders are also watching the week-old truce between Israel and Hizbollah, which the UN said on Sunday could easily collapse again if the UN resolution that engendered it was violated further.
The conflict had boosted New York crude to a record $78.40 on July 14 on worries it could spread to oil producers in the Middle East, source of almost a third of world supply. But prices fell back in response to the cease-fire and on Friday dipped below $70 for the first time since June.
SINGAPORE: Oil prices rose above $71 a barrel on Monday, bolstered by Iran's determination to continue with its atomic fuel programme ahead of a deadline from the United Nations to halt nuclear work. US light crude for September delivery was up 31 cents at $71.45 a barrel, after gaining $1.08 on Friday.