Oil settles slightly higher on Iran concerns

NEW YORK (Reuters) - Oil prices rose slightly on Thursday as the West’s negotiations with Iran about the OPEC member’s nuclear program sparked concern that outweighed demand worries prompted by lackluster U.S. economic data.

An EnCana pump jack pumps oil out of the ground near Rockyford, Alberta, June 30, 2009. REUTERS/Todd Korol

U.S. crude futures settled at $70.82 a barrel, up 21 cents. The previous session saw a rise of nearly $4, the biggest daily jump in dollar terms since April.

London Brent crude settled 12 cents higher at $69.19 a barrel.

“The Iran factor (was) pumping up the risk premium ...whenever you talk about Iran, you’re going to get a mixed interpretation of what’s going on,” said Jim Ritterbusch, president, Ritterbusch & Associates, Galena, Illinois.

Six Western leaders met with in Geneva with Iran for rare bilateral talks to discuss Tehran’s nuclear program, which has been a bullish factor in oil markets in recent years.

“Iran must demonstrate through concrete steps that it will live up to its responsibilities with respect to its nuclear program,” U.S. President Barack Obama said on Thursday.

President Obama said Tehran must grant the International Atomic Energy Agency access to a second nuclear site and demonstrate the country’s nuclear program is peaceful.

In late 2008, Iran threatened to block the Strait of Hormuz, the sea route through which approximately 40 percent of the world’s globally traded oil passes, when tensions escalated in another row with the United States around the nuclear program.

“Traders think the possibility of the negotiations going poorly should be factored into prices,” said Peter Beutel, president, Cameron Hanover, New Canaan, Connecticut.

Oil prices were also propped up by evidence of increasing U.S. gasoline demand in government data released on Wednesday.

Gasoline inventories dropped by 1.6 million barrels to 211.5 million while gasoline demand jumped 5.4 percent over the last four weeks compared to year-ago levels, according to a weekly Energy Information Administration report.

“Gasoline demand was up in the latest week with the EIA reporting a drawdown and that has encouraged follow-through buying,” Beutel said.

The oil market has been looking to economic data for signs of a broad economic recovery.

Oil prices were pressured earlier in the day by weak economic data showing that the U.S. manufacturing sector missed analyst expectations for growth in September and jobless claims increased last week.

The U.S. manufacturing sector expanded in September, but missed analyst expectations, according a report from the Institute for Supply Management.

A U.S. Labor Department report showed the number of U.S. workers seeking jobless benefits climbed last week.

Additional reporting by Robert Gibbons and Gene Ramos in New York, Emma Farge in London; Editing by David Gregorio