Oil up, Iran keeps up atomic work as deadlines near

Tehran's refusal to abandon its atomic work, as demanded by six world powers, raised the prospect of punitive action by the United Nations. The U.N. Security Council has demanded that Iran halt its nuclear work by a second deadline of Aug. 31.

Investors are concerned the world's fourth biggest exporter might retaliate by withholding daily exports of more than 2 million barrels from global markets already strained on the supply side.

U.S. crude was up 84 cents at $70.90 a barrel by 1810 GMT, after dropping below $70 for the first time since June 21 earlier in the session. London Brent was up 81 cents to $72.39 after a $1.50 slide.

"This end-of-week short-covering could be inspired partly by comments from Iran not giving up their nuclear program," said Tony Machacek of Bache Financial. "We're coming close to the U.N. deadline and Tehran is still pretty defiant."

U.S. Undersecretary of State Nicholas Burns said on Thursday he expected the U.N. Security Council to "take up its responsibilities" and impose sanctions if Tehran did not stop its enrichment program.

But Iran's President Mahmoud Ahmadinejad said earlier on Thursday his country could not abandon its nuclear work while the United States was developing new atomic bombs every year.

Friday's bounce followed oil's steep drop to a two-month low as ample fuel stockpiles in the United States eased fears of a supply crunch at the end of the summer driving season.

Crude prices have shed more than 7 percent after a cease-fire took hold in the Middle East and BP shut in only half of its 400,000 barrels per day (bpd) Prudhoe Bay oilfield.

On Friday BP told a committee of the Alaska state legislature that oil output from the western half of Prudhoe Bay had risen above 200,000 bpd and that about 18,000 bpd from the eastern half had been restarted.

Traders had feared the supply loss from the biggest oilfield in the United States might lead to a big drop in crude stocks in the world's largest oil market, but data on Wednesday showed a decline of 1.6 million barrels, in line with forecasts.

Crude stocks have fallen from the eight-year high reached earlier this year, but remain higher than almost any time since 1999, giving refiners a sizable supply buffer to guard against any unexpected disruptions.

Oil was unmoved by news on Friday of a rise in interest rates in China, the world's second biggest fuel consumer.

"It's in line with what we'd regard as a gradual tightening of liquidity in the Chinese economy," said Kevin Norrish of Barclays Capital.

"We don't think it means there's a risk of any significant sharp decline in China's imports of oil, that's for sure."

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