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Oil higher as Iran remains defiant

(Reuters) / 31 August 2006

LONDON/SINGAPORE - Oil prices edged higher on Thursday as Iran looked set to defy the United Nations’ deadline for halting nuclear enrichment, raising the risk of sanctions against the world’s fourth-biggest crude exporter.

U.S. oil prices CLc1 climbed 44 cents to $70.47 a barrel after bouncing from a 10-week low $68.65 a barrel on Wednesday, shaking off an unexpected rise in gasoline and crude stocks.

London Brent LCOc1 rose 44 cents to $70.62 a barrel.

Later on Thursday the UN nuclear watchdog is likely to report that Iran has not complied with a UN demand to suspend its atomic fuel work, which the West fears is meant for building a bomb but Tehran insists is only for generating power.

Iran reiterated that it will not give up its right to nuclear power, although last week it indicated it could negotiate on the scope of the plans, reinforcing UN powers China and Russia’s resistance to any immediate punitive measures.

“They (the West) should know that Iranian nation will not yield to pressure and will not accept any violation of its rights,” President Mahmoud Ahmadinejad said in a televised speech on Thursday.

Major powers will begin discussing an Iran sanctions resolution at a meeting in Europe next week if Tehran continues to defy the UN, the U.S. State Department said on Wednesday, but even ally Britain has played down any quick measures.

“Initially, the diplomatic gridlock looks like it will generate little in the way of concrete actions. For the time being, prices will bounce around, but little else,” said First Energy Capital analyst Martin King in a report.

Still, dealers are anxious of the potential repercussions.

If Iran did retaliate by cutting its own production or interrupting Middle East exports through the Gulf of Hormuz, which carries a fifth of the world’s oil supplies, the implications could be long-lasting.

“The impact could be similar in scope to the way the Venezuelan strikes and Nigerian outages of 2003 were still impacting the crude oil market more than one year afterward,” said King.

Oil prices have eased $8 below their all-time high in July as the summer driving season winds down and after Israel and Hizbollah agreed to a truce.

Nigerian oil unions decided on Wednesday to stage a “warning strike” on Sept. 13 lasting two or three days to protest a lack of security in the Niger Delta, a union leader said. Violence against foreign oil companies has cut the OPEC member’s output by about a sixth, or around 500,000 bpd.

Warning strikes typically have no impact on oil output.   

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