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Tension in the Middle East ends slump for oil

OIL prices rose for the first time in two days yesterday as tensions escalated over Iran's nuclear ambitions and Federal Reserve Chairman Ben Bernanke said he continued to support a federal lending program that could weaken the dollar.

Benchmark crude for November delivery added 13 cents to settle at US$66.02 a barrel on the New York Mercantile Exchange. In London, Brent crude rose 29 cents to settle at US$65.11 on the ICE Futures exchange.

Oil prices slumped most of the week after government reports showed the US continues to sit on a huge petroleum surplus as the summer driving season comes to a close.

But they rebounded early yesterday when President Barack Obama and the leaders of France and Britain issued a stern warning to Iran, demanding the country come clean on its nuclear program.

"Iran is breaking rules that all nations must follows," Obama said at the opening of the G-20 economic summit in Pittsburgh.

Iran is OPEC's second-largest oil producer after Saudi Arabia, and its southern border lies along the crucial Strait of Hormuz, where supertankers carry crude from the Persian Gulf to the rest of the world.

Any saber rattling towards Iran tends to boost oil prices. Still, the effect yesterday was relatively mild with oil producers exporting much less because of a drop in world demand.

"There's a lot of countries that would be more than happy to go over their quotas and make up for Iran's production," said Phil Flynn, an analyst with PFGBest.

Oil prices also got a boost from Bernanke, who said he continues to support the expensive Term Asset-Backed Securities Loan Facility. The program, which gives loans to investors and is meant to spark bank lending, is seen as inflationary and has driven investors to commodities like oil.

Meanwhile, a Tesoro refinery in Los Angeles caught fire early yesterday. The 300-acre (121-hectare) facility in Wilmington refines 97,000 barrels of oil per day. That may have had a larger impact on oil prices if demand for gasoline was not so weak.

In other Nymex trading, gasoline for October delivery lost nearly 2 cents to settle at US$1.6205 a gallon, and heating oil for October delivery lost less than a penny to settle at US$1.6771 gallon. Natural gas added 3 cents to settle at US$3.985 per 1,000 cubic feet.


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