Aug. 1 (Bloomberg) -- Crude oil rose after Israeli Deputy Prime Minister Shaul Mofaz said today that all options are open as Iran drives toward a ``major breakthrough'' in its nuclear weapons program.

Oil climbed more than $4 a barrel in intraday trading as Mofaz's comments fueled speculation that the U.S. or Israel may attack Iran. Iranian President Mahmoud Ahmadinejad said OPEC's second-largest producer will ``resist with force'' any outside efforts to slow its nuclear program, Agence-France Presse said.

Mofaz ``definitely has juice,'' and his comments ``would make everybody nervous,'' said Michael Fitzpatrick, vice president for energy risk management at MF Global Ltd. in New York. Mofaz is seen as a candidate for Israeli prime minister after Ehud Olmert said he would leave office.

Crude oil for September delivery rose $1.02, or 0.8 percent, to settle at $125.10 a barrel at 2:57 p.m. on the New York Mercantile Exchange. Earlier, it touched $128.60 a barrel. Oil rose $1.84, or 1.5 percent, this week. It was the first weekly increase in four.

Iran with a nuclear weapon would pose an ``unacceptable'' danger and be ``an existential threat'' to Israel, Mofaz said at a forum on Iran at the Washington Institute for Near East Policy.

Similar speculation of an attack on Iran contributed to the oil-price rally that took futures to a record $147.27 a barrel on July 11.

Iran previously has threatened to blockade the Strait of Hormuz, through which a quarter of the world's crude is exported, if its nuclear facilities are targeted. It pumped about 3.85 million barrels of oil a day in June, according to data compiled by Bloomberg.

Iranian Supreme Leader Ayatollah Ali Khamenei, the country's highest authority, said this week that his country will push forward with its nuclear program, which Iranian officials say is designed for energy generation and other peaceful purposes.

Weekend Deadline

Ahmadinejad said July 27 that the country has 6,000 uranium- enriching centrifuges, the Associated Press reported.

Iran faces a deadline tomorrow to reply to an offer from world powers of economic and diplomatic incentives in exchange for the suspension of its uranium-enrichment program. It was set by U.S. and EU diplomats at talks in Geneva July 19.

Iranian Foreign Minister Manouchehr Mottaki said yesterday that Iran doesn't face a deadline and has already replied to the six nations negotiating with it over its nuclear program.

``This whole thing with Iran tomorrow has everybody nervous because they're supposed to update everybody what they're going to do with their nukes, and then you have the saber-rattling from Israel,'' said Dean Hazelcorn, head trader at Coquest Inc. in Dallas.

Demand Destruction

Oil prices dropped in earlier trading amid signs demand will extend declines, after the government reported the U.S. lost jobs for a seventh-straight month in July.

``Today's spike might be a bit of a knee-jerk reaction,'' said Antoine Halff, head of energy research at Newedge USA LLC in New York. ``It's a tug-of-war between the more bullish geopolitical concerns and the more bearish economic outlook.''

Oil dropped as low as $122.10 a barrel today after the Labor Department said payrolls fell by 51,000, less than forecast, and the jobless rate rose to 5.7 percent, the highest since March 2004, from 5.5 percent the month before. Fuel consumption in the past 12 months was the lowest since 2004-2005, according to the Energy Department.

``Bad economic news is leading to demand destruction,'' said Phil Flynn, senior trader at Alaron Trading Corp. in Chicago.

Futures have slipped more than $22 a barrel, or 15 percent, from the record on signs of declining demand in the U.S., which consumed about 24 percent of the world's crude in 2007. They fell 11 percent in July, the biggest one-month decline since December 2004.

Gasoline

Gasoline for September delivery rose 1.34 cents, or 0.4 percent, to $3.0843 a gallon on the Nymex. Earlier, the contract touched $3.1970 a gallon. Futures fell 13 percent last month, the biggest drop since September 2006, as a slowing economy cut demand for the motor fuel. It reached a record $3.631 on July 11.

Regular gasoline at the pump, averaged nationwide, fell 1.1 cents to $3.898 a gallon, AAA, the nation's largest motorist organization, said today on its Web site. Pump prices have dropped every day since reaching a record $4.114 a gallon on July 17, as higher prices curbed demand.

Record second-quarter energy prices have sapped U.S. automakers' profits as consumers shift to cars and away from the trucks and sport-utility vehicles that dominate the lineups for General Motors Corp., Ford Motor Co. and Chrysler LLC. GM reported a $15.5 billion quarterly loss today, the third-worst in the 100-year history of the biggest U.S. automaker.

Economic News

The U.S. economy shrank at the end of 2007 and grew less than forecast in this year's second quarter. Gross domestic product increased at a 1.9 percent annualized rate, the Commerce Department said in Washington yesterday, compared with the median projection of 2.3 percent in a Bloomberg News survey.

Brent crude oil for September settlement rose 20 cents to $124.18 a barrel on London's ICE Futures Europe exchange.

Crude prices may fall next week on slowing demand. Thirteen of 29 analysts surveyed by Bloomberg News, or 45 percent, said prices will drop through August 8. Seven of the respondents, or 24 percent, said oil will rise and nine forecast little change. Last week 46 percent expected a decline.

To contact the reporter on this story: Margot Habiby in Dallas at mhabiby@bloomberg.net.

Last Updated: August 1, 2008 16:14 EDT