Sept. 13 (Bloomberg) -- Crude oil rose for the first day in eight after a government report showed a greater-than-expected drop in inventories and the U.S. called for sanctions on Iran.

Supplies fell 2.9 million barrels to 327.7 million barrels in the week ended Sept. 8, the U.S. Energy Department reported. Analysts in a Bloomberg News survey expected a drop of 2 million barrels, according to the median of 14 estimates. Oil also rose after the U.S. said the UN Security Council should impose sanctions on Iran for failing to suspend its nuclear program.

The inventory ``numbers looked supportive to crude oil and any type of headline would give it a nudge to the upside,'' said James Ritterbusch, president of Ritterbusch & Associates in Galena, Illinois.

Crude oil for October delivery rose 21 cents, or 0.3 percent, to $63.97 a barrel on the New York Mercantile Exchange. Oil prices have dropped 17 percent since touching a record $78.40 on July 14.

After seven straight days of declines, ``the market looks for excuses to relieve the oversold conditions and a piece of news may do it, the inventories may do it,'' said Ric Navy, a broker at BNP Paribas SA in New York. ``The technical picture is still extremely bearish.''

Brent crude for October settlement was unchanged at $62.99 a barrel on London's ICE Futures Exchange. The contract expires Sept. 14.

Crude oil supplies were 11.7 percent above the five-year average. Inventories of distillate fuel, including heating oil and diesel, rose 4.64 million barrels, more than twice what analysts in the survey expected, to 144.6 million. Gasoline inventories increased 114,000 barrels to 207 million barrels.

Heating oil futures for October delivery fell 1.69 cents, or 1 percent, to $1.7428 a gallon in New York. Gasoline for October delivery rose 0.1 cent to $1.5531 a gallon.

Iran Standoff

Crude oil rose in New York this year partly on concern the standoff with Iran over its nuclear program would result in a disruption of supplies from the world's fourth-biggest producer.

``We must take further steps to persuade Iran to abandon its nuclear weapons ambitions,'' the U.S. said in a statement to the International Atomic Energy Agency in Vienna today. ``The time has come for the Security Council to back international diplomacy with international sanctions.''

The U.S. accuses Iran of trying to develop nuclear weapons. Iran says its program is for energy generation. The United Nations Security Council ordered the country to halt uranium enrichment, a process that can be used for nuclear power or to make bombs, in a July 31 resolution.

Iran produced 4.02 million barrels of crude a day in August, according to Bloomberg estimates.

Concern Over Declines

The Organization of Petroleum Exporting Countries, which pumps about 40 percent of the world's oil, is concerned about the pace of the decline in prices in past days, oil ministers from Nigeria, Iran and Algeria said this week. OPEC agreed Sept. 11 to keep its output target unchanged at 28 million barrels a day.

``We've already taken about $15 a barrel off of crude oil,'' Gene Pisasale, a money manager at Baltimore-based Mercantile Bankshares Corp., which oversees $25 billion, said in an interview. ``If we do test $60, which is possible, I think you will see talk of a cutback.''

Worldwide oil demand will be 84.7 million barrels a day this year, the IEA wrote yesterday in a monthly report, 100,000 barrels a day less than estimated last month. The forecast for demand next year was cut by 160,000 barrels a day to 86.2 million.

``There is really a confluence of bearish price factors for the crude and across the energy space,'' said Jason Schenker, an economist with Wachovia Corp. in Charlotte, North Carolina. ``Inventory levels, the lack of hurricanes, the IEA cut in demand expectations, slowing U.S. growth, slowing global growth,'' are issues that could lead to further declines.

Storms, Strikes

Nigeria, Africa's biggest oil producer, may have production slowed during a three-day ``warning'' strike over better security for workers.

More than 20,000 workers from the Petroleum & Natural Gas Senior Staff Association, or Pengassan, and the National Union of Petroleum & Natural Gas Workers, or Nupeng, are striking, Lumumba Okugbawa, Pengassan's acting general secretary, said in a telephone interview.

The strike comes a day after a Chevron Corp. contractor was killed in a criminal attack on an offshore vessel, Chevron spokesman Femi Odumabo said.

Militant attacks and other damage have cut Nigeria's oil production by 872,000 barrels a day, Oil Minister Edmund Daukoru said on Sept. 11.

Nigerian output was estimated at 2.27 million barrels a day in August, slightly more than the 2.26 million barrels a day in July, according to the IEA. The West African country's daily output averaged 2.4 million barrels during 2005.

To contact the reporter on this story: Robert Tuttle in New York at rtuttle@bloomberg.net

Last Updated: September 13, 2006 15:28 EDT