Aug. 21 (Bloomberg) -- Crude oil rose a second day after Iran refused a United Nations demand to stop enriching uranium, heightening concern oil supplies from the world's fourth-largest producer will be disrupted.

A halt in enrichment is ``unacceptable for the Islamic republic,'' Hamid Reza Asefi, a Foreign Ministry spokesman, said yesterday. The UN gave Iran until the end of the month to accept a plan offering incentives to halt its nuclear program or face sanctions. President Mahmoud Ahmadinejad plans to respond to the plan tomorrow.

The oil market is ``very sensitive to further risks of disruption,'' said Eoin O'Callaghan, a BNP Paribas SA analyst in London. ``With the right risks, we may very easily go over $80.''

Crude oil for September delivery rose as much as 94 cents, or 1.3 percent, to $72.08 a barrel on the New York Mercantile Exchange. It traded at $71.90 at 2:31 p.m. in London. Crude has risen about 17 percent this year on concern supplies from Iran and Nigeria, Africa's largest producer, will be disrupted.

About 17 million barrels a day of oil, or a fifth of the world's consumption, flows through the Strait of Hormuz, a 21-mile wide waterway between Iran and Oman. The U.S. could ``seriously endanger energy flow in the region'' by acting against Iran's nuclear program, Ayatollah Ali Khamenei, the country's supreme leader, said June 4.

``Under current circumstances, the suspension of uranium enrichment is not possible,'' Mohammad Saeedi, deputy head of Iran's Atomic Energy Organization, told state-run Fars News. Iran's heavy water nuclear reactor in the city of Arak will be operational ``soon,'' Saeedi said.

Exempting Oil

``People are concerned the UN may approve a possible embargo on Iran, which in turn may cut exports,'' said Edo Gerbrands, a trader with Fortis Bank in Brussels. ``Whether this happens is questionable.''

The Japanese government proposed exempting oil from any economic sanctions the UN might impose on Iran, the newspaper Yomiuri said today. Japan buys 14 percent of its oil from Iran.

Instead of sanctions against Iran's oil industry, western diplomats are preparing to block components for the country's nuclear industry and impose injunctions on individuals in the government, the Wall Street Journal said today, citing unidentified people familiar with the matter.

United Nations Security Council members Russia, France and the U.K. all have oil companies with interests in Iran, the Journal said. China, Iran's biggest customer along with Japan, is also likely to oppose sanctions against its energy industry.

If no major hurricanes happen this year and Iran doesn't ``do anything irrational like blockade the Strait of Hormuz, then there is a very good chance that we could be looking at prices dropping faster and further than anybody would dare suggest,'' said Peter Beutel, president of Cameron Hanover Inc., a New Canaan, Connecticut, energy consultant.

Rusting Pipes

Some analysts, oil executives and government officials say the world's system for producing and transporting crude will be unable to deliver the energy needed in the next 10 years. Repairs and replacement of pipes, valves and refineries will help push oil to $93 a barrel by 2015, says Barclays Capital analyst Kevin Norrish in London.

Internal corrosion is the biggest reason for pipeline spills in the U.S. this year, causing 16 percent of all accidents through Aug. 9, according to U.S. Department of Transportation's Office of Pipeline Safety.

BP Plc, the world's third-biggest oil company by market value, had to cut output at the Prudhoe Bay oilfield in Alaska, the largest in the U.S., more than 50 percent following pipeline corrosion and a leak earlier this month. Last week, it raised production to more than 200,000 barrels a day.

Rising Prices

The September crude contract traded in New York expires tomorrow. The more active contract for October rose 71 cents to $72.81 a barrel. London's Brent crude oil for October settlement rose as much as $1.44, or 2 percent, to $73.74 a barrel. It sold at $73.47 at 1:30 p.m. on the ICE Futures exchange.

``We still have a relatively tight oil market; we are still in the summer,'' BNP Paribas's O'Callaghan said. ``Hurricanes are still a possibility and obviously geopolitical risk is still elevated.''

Oil reached a record $78.40 a barrel July 14 in New York as fighting broke out in Lebanon between Israel and Hezbollah. A UN- brokered cease-fire on Aug. 14 halted the combat.

``The discussion is how long will it (cease-fire) stay and that depends on how fast the international troops actually would be sent to Lebanon,'' said Mohammed Shakeel, a Middle East analyst at Global Insight. ``The Europeans are undecided over how many troops each particular country'' will send.

Gasoline Rises

Gasoline for September delivery rose as much as 0.8 cents to $1.9749 a gallon in New York. The average U.S. price for unleaded gasoline at the pump fell to $2.929 per gallon yesterday from $2.936 the day before, according to the American Automobile Association, the nation's largest driver organization. The pump price is 31.6 cents higher than a year ago.

Hedge-fund managers and other large speculators increased their bets last week that oil prices will rise. Net-long position increased in New York for crude-oil futures in the week ended Aug. 15, according to U.S. Commodity Futures Trading Commission data.

Speculative long positions, or bets prices will rise, outnumbered short positions by 83,794 contracts on the New York Mercantile Exchange, the commission said Aug. 18 Net-long positions rose by 13,264 contracts, or 19 percent, from a week earlier.

To contact the reporter on this story: Eduard Gismatullin in London at egismatullin@bloomberg.net

Last Updated: August 21, 2006 09:51 EDT