Oil gives back gains despite Iran, tropical storm

By Peter Graff

LONDON (Reuters) - Oil gave back most of its gains of more than $3 during trading on Monday, as worry over Iran and a storm in the Gulf of Mexico were not enough to sustain a price recovery after the biggest one-week slide on record.

U.S. light crude for August delivery fell back below $130 having been as high as 132.05.

At 2:05 p.m. GMT (10:05 a.m. EDT) it was up 71 cents at 129.60, having briefly dipped below the opening price of 128.88. London Brent crude was $95 cents higher at $131.14, off highs of $133.15.

A stalemate over talks to resolve Iran's nuclear standoff with the West and the tropical storm in the Gulf of Mexico both provided reasons to call a halt to last week's sell off, but were not enough to sustain a recovery in prices.

"If you are in a downward trend and you get a couple of factors providing upward pressure, the upward pressure might not be enough to get prices to go up, but could cause prices to stabilize," said Mike Wittner of Societe General in London.

Oil's losses last week were the biggest in dollar terms since futures began trading in New York in 1983 and in percentage terms the steepest sell-off since late 2004.

Major powers on Saturday gave oil producer Iran two weeks to rein in its nuclear programme, which it says is only for peaceful purposes, or face tougher sanctions.

But the talks ended in stalemate despite unprecedented U.S. participation.

The war of words between Iran and the West has contributed to tensions in the Middle East that helped to push oil prices to a record high of $147.27 on July 11.

But prices corrected sharply last week, pressured in part by concern over the fragile economy in the United States, the world's biggest energy consumer, as well as by expectations the weekend talks on Iran could defuse tension.

Tropical Storm Dolly, which is headed for Mexico's Yucatan Peninsula, also helped to boost the market as the storm was set to pass just north of Mexico's huge Cantarell oil field.

The fourth storm of the 2008 Atlantic hurricane season is expected to emerge into the Gulf of Mexico on Monday local time, north of the Cantarell field and other ports and platforms used by the world's sixth-largest oil producer and top supplier to the United States.

"She may dissipate, but if direction were to change then a protective shut in of production facilities across the Gulf of Mexico is likely," said Rob Laughlin, at broker MF Global.

(Reporting by Jane Merriman and Peter Graff in London, and Fayen Wong in Perth, editing by Anthony Barker)

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