Oil climbs towards $73 on U.S. Gulf storm worry

SINGAPORE, Aug 25 (Reuters) Oil prices climbed towards on Friday as another storm brewed in the Caribbean with the potential to reach the Gulf of Mexico next week, creating worries over U.S. production already trimmed by an outage in Alaska.

Support also came from Iran's nuclear dispute with the West that could lead to United Nations sanctions against the world's fourth largest oil exporter.

U.S. crude for October delivery was up 55 cents at .91 a barrel by 0237 GMT, after gaining 60 cents on Thursday. London Brent crude for October rose 32 cents to a barrel.

A spinning band of squalls in the southeastern Caribbean was on the verge of becoming Tropical Storm Ernesto by Friday, expected to head northwest towards the Gulf of Mexico by the middle of next week, forecasters said.

''Traders have turned their focus from comfortable inventory levels in the U.S. to storm activity out in the Atlantic,'' said Tobin Gorey of the Commonwealth Bank of Australia.

Forecasters expected Tropical Storm Debby to strengthen and possibly become the season's first hurricane, but saw its path heading away from the U.S. Gulf Coast, where production was battered by hurricanes Katrina and Rita last year.

U.S. oil output fell 90,000 barrels per day (bpd) on Wednesday when BP cut its Prudhoe Bay production to 110,000 bpd after a technical fault that would last several days.

The Alaskan field had previously been running at about half its normal capacity after pipeline corrosion. The reduced output helped push down U.S. crude oil stocks last week, though the drop was smaller-than-expected.

The two-day price rally shrugged off a near 2 percent slide mid-week after U.S. gasoline inventories unexpectedly rose 400,000 barrels to ease worries about stocks being run down by northern summer demand.

IRAN WORRY Germany added European weight to U.S. displeasure with Iran's reply to proposals by world powers aimed at ending a nuclear standoff, saying on Thursday Tehran's insistence on enriching uranium hindered a negotiated solution.

Germany's stance was significant as it is seen as the Western power least keen to resort to sanctions. The U.N. Security Council has demanded Iran halt its nuclear work by a deadline of Aug. 31 or it could face sanctions, which traders fear could lead Iran to disrupt oil supplies.

U.S. crude prices have risen 19 percent this year on fears over Iran's supplies and reduced Nigerian output, though prices have fallen back from a record-high of .40 in July after a ceasefire between Israel and Lebanon.

At least 508,000 bpd or about a sixth of Nigeria's output capacity has been shut in due to militant attacks and pipeline leaks this year. Gunmen kidnapped an Italian oil worker in Nigeria on Thursday, the latest in a string of abductions.

''Events over the past few days in Nigeria suggest that the risk of further production losses is growing again,'' said Barclays Capital.

The head of one of the country's oil workers unions said this week that the unions may pull their members from the oil-producing Niger Delta on safety fears.

REUTERS SKU PM0920 Reut 03:05 08-25-06