Oil rises past $131 on Iran deadlock, Gulf storm

Oil prices also rose Monday on concerns that Tropical Storm Dolly may disrupt operations in the Gulf of Mexico.

Royal Dutch Shell PLC began evacuating workers from some work sites in the western part of the Gulf, although it said it did not expect Dolly to affect production.

"You see oil companies evacuate personnel ... that will lend support to prices," said John Kilduff, senior vice president for risk management at MF Global LLC in New York. He predicted other companies would pull workers off rigs as a precaution.

Dolly drenched Mexico's Yucatan Peninsula and headed into the warmer waters of the Gulf, packing sustained winds near 50 mph.

The National Hurricane Center in Miami issued a hurricane watch from Brownsville, Texas, north to Port O'Connor, but so far U.S. government officials had not asked residents to leave the coast. Mexico also announced a hurricane watch from Rio San Fernando north to Matamoros and the U.S. border. Dolly was expected to make landfall Wednesday as a Category 1 storm with sustained winds of 74 mph to 95 mph.

AccuWeather.com predicted the storm would not affect U.S. oil and natural gas platforms in the Gulf despite the likelihood of rough seas. However, Dolly could hit rigs operated by Mexican national oil company Petroleos Mexicanos in the Bay of Campeche, the forecasting company said.

The impending expiration of the current oil contract added to the day's volatility, analysts said.

Natural gas prices, which have fallen sharply since early this month, continued their slide. August futures fell 6 cents to settle at $10.51 per 1,000 cubic feet.

Kilduff attributed the ongoing sell-off in part to the weakening U.S. economy, which has cut industrial demand for the fuel, and a surprisingly large increase in storage levels last week. Technical models used to gauge pricing support, he added, "have completely broken down"--giving traders little reason to be bullish.

In other Nymex trade, heating oil futures rose 5.64 cents to settle at $3.7479 a gallon while gasoline futures rose 4.62 cents to settle at $3.2171 a gallon.