Oil up as Iran letter hopes fade

Fears that supply might be drying up are pushing up oil prices

The price of US light crude oil has resumed its upward path, after fears over Iran's nuclear ambition increased.

US light sweet crude settled 92 cents a barrel higher at $70.69 after hitting a session peak of $71.45. In the UK Brent crude rose 87 cents to $71.08.

The rise followed a US rejection of Iranian president Mahmoud Ahmadinejad's letter to the US on Monday.

Traders fear the US may opt to impose sanctions over Iran's nuclear status thus limiting oil supplies from Iran.

Critical

Iran is the oil exporting cartel Opec's second biggest exporter.

The US has accused the country of seeking to develop nuclear weapons, but Tehran insists it is only seeking to produce energy for civilian use.

Tension over Iran's nuclear status contributed to US light crude hitting a record of $75.35 in April.

The full contents of the letter from Mr Ahmadinejad to President Bush have not been published, but it is understood it was critical of the US-led invasion of Iraq and urged Mr Bush to return to religious principles.

The letter was the first from an Iranian to a US president since 1979.

US Secretary of State Condoleezza Rice dismissed the letter as "offering nothing new" and the White House said there would be no formal written reply.

Other factors forcing the oil price up include unrest in Nigeria, violence in Iraq, Bolivia's sudden decision to nationalise its gas fields and Venezuela's announcement that it has decided to almost double taxes on foreign oil companies operating in the country.