Oil: Price bounces up around US$1

Oil climbed nearly US$1 a barrel on Tuesday as a solution to Iran's nuclear standoff with the West remained elusive.

London Brent crude rose 82 cents to US$71.03 a barrel in afternoon trade while US light crude gained 93 cents to US$70.70, off a session high of US$71.45.

US oil ended off 42 cents on Monday following losses of more than US$1 earlier in the session after Iranian President Mahmoud Ahmadinejad wrote to US President George W. Bush.

It was the first letter from an Iranian head of state to a US president since Washington broke off relations after the 1979 Islamic revolution.

But the United States was dismissive of the letter, which made no proposals for resolving the West's concerns over Tehran's nuclear ambitions.

A US-hosted meeting on Monday of ministers from Russia, Britain, China and Germany was inconclusive and Germany said on Tuesday more work was needed to unite world powers behind a UN resolution to rein in Iran's nuclear ambitions.

Iran, Opec's second biggest exporter, stands accused of seeking to develop nuclear weapons, but Tehran has said it is only seeking to produce energy for civilian use.

Tension between the West and Iran helped to push prices for US crude to a record of US$75.35 in April.

SAUDI SAYS STRENGTH TO STAY

Rising energy costs cut into US consumer confidence for the the third month in a row, according to data from Investor's Business Daily and TechnoMetrica Market intelligence.

Analysts have said rising petrol prices may cut into US demand at the pump, and on Tuesday the US Energy Information Administration released revised estimates of petrol and oil demand down for the second and third quarter.

Opec's biggest exporter, Saudi Arabia, said it expected prices to hold firm.

"I believe oil prices during this decade will hold steady," Oil Minister Ali al-Naimi told a Euromoney conference in Riyadh on Tuesday, but he did not give a price range and said price movements were hard to predict.

He also said Opec, the bulk of whose spare capacity lies with Saudi Arabia, would be able to meet expected growth in global crude demand, but that the world will face a refining capacity crunch for the next four years.

However, Libya's most senior oil official predicted prices would remain volatile and strong as long as political rhetoric continued and in the event of military action against Iran.

"If any military action takes place, I wouldn't be surprised if oil would be sold in pharmacies," Shokri Ghanem told Reuters.

Opec next meets on June 1 in Caracas, but ministers have repeatedly said the cartel, which is pumping as much as it can, is powerless to bring down prices.

Rising US inventories of petrol just in time for the driving season are to an extent calming the market.

An updated Reuters survey of analysts predicted the next set of inventory data on Wednesday would show a 1.2 million barrel increase in US petrol stocks. That would be the second weekly increase in a row.

Crude stocks were seen down 600,000 barrels following an increase in refinery activity.

Oil's rally on Tuesday coincided with gains in metals, with gold hitting a new 25-year high, aluminum MAL3 striking an 18-year high and platinum hitting a record.

- REUTERS