Oil rises past $131 on Iran deadlock, Gulf storm

Light, sweet crude for August delivery added $2.16 to settle at $131.04 a barrel on the New York Mercantile Exchange. It was oil's first gain in a week.

For drivers in the U.S., pump prices eased by a few pennies. A gallon of regular gasoline now sells for an average just shy of $4.07, according to auto club AAA, the Oil Price Information Service and Wright Express. Diesel prices also pulled back, to an average of $4.818 a gallon.

Retail prices may decline even more in the coming days as gas station operators catch up to last week's four-day oil sell-off, which left crude more than $18 below the trading record of $147.27 it hit on July 11.

"If the futures market stays relatively flat this week, we could see some further declines at the pump," said Jim Ritterbusch, president of energy consultancy Ritterbusch and Associates.

Energy traders bid oil prices up after a weekend meeting between Iran and six world powers, including the U.S., failed to break the deadlock over Iran's disputed nuclear program.

In her first public comments since Saturday's meeting in Switzerland, U.S. Secretary of State Condoleezza Rice accused Iran of not being serious at the talks despite the presence of a senior U.S. diplomat, and warned it may soon face new sanctions. The six nations have given Tehran a two-week deadline to freeze suspect activities and start negotiations or be hit with new penalties.

Iran is OPEC's second largest oil producer and is estimated to be No. 2 in terms of global natural gas reserves.

Investor perception about the likelihood of conflict between Iran and the West has been a major reason for oil's rise in recent months. Traders fear Tehran could respond to an attack aimed at halting uranium enrichment by blocking oil supplies in the strategic Straight of Hormuz, a passageway that handles 40 percent of the world's tanker traffic.

"The buying has picked up ... as U.S. traders return to their desks after a weekend in which the only outcome to the much-anticipated talks in Geneva between Iran and the West was disappointment," Addison Armstrong, Tradition Energy's director of market research, said in a research note.