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Oil steadies above $70, Iran worries curb selling

US crude for October delivery CLc1 rose two cents to $70.63 a barrel by 1141 GMT and London Brent crude LCOc1 gained nine cents to $70.91 a barrel.

On Monday, US crude fell by $1.90 after Ernesto, which was briefly the first hurricane of the US season, was downgraded to a tropical storm.

Last year hurricanes Katrina and Rita temporarily knocked out all of the Gulf’s offshore production and pushed oil prices to then record highs.

The hurricane season continues until around November, but analysts say the oil supply situation is comfortable and some predict oil prices, which hit an all-time peak of $78.65 early this month, will struggle to regain previous strength.

“The highs are not going to be repeated unless we get a really damaging hurricane,” said Olivier Jakob of Petromatrix.

“The tensions in Iran are going to be there for a while, but for now there’s nothing that says there’s going to be any threat to our supply.”

The United Nations Security Council has told Iran to suspend atomic fuel work by Aug. 31 or face possible sanctions, but Iran has repeatedly said it will not stop uranium enrichment.

Analysts have voiced concern Iran, the world’s fourth largest oil exporter, might disrupt oil supplies in response to any sanctions against it.

US slowdown

For now fuel supplies are healthy and there are some signs of lower demand growth as a result of high prices, which are also prompting concern about a slowdown in US economy.

The US government’s Energy Information Administration (EIA) on Monday released data showing US gasoline demand grew in June by less than half the rate implied by previous figures.

US gasoline demand rose by 60,000 barrels per day (bpd), or 0.64 percent, to 9.44 million bpd, compared with weekly data that had showed an increase of more than 120,000 bpd, the EIA said.

The next set of data to be released on Wednesday was expected to show a 1.2 million barrel decline in crude stocks last week after refineries increased activity.

Distillate stocks, including heating oil, were expected to rise by 1.2 million barrels, according to a Reuters analyst poll.

Gasoline stocks were predicted to fall by 800,000 barrels, but analysts are decreasingly concerned about gasoline inventories given the US summer driving season is considered to end with next week’s Labour Day holiday.

“The recent gasoline market sell-off and increasing attentiveness of the market to the US slowdown supports our forecast that after peaking in the third quarter, crude prices will fall into the fourth quarter and 2007,” Eoin O’Callaghan of BNP Paribas wrote in a research note.