Oil climbs back above $70, Iran supports

LONDON, Aug 30 (Reuters) Oil bounced back above a barrel on Wednesday, recovering from a 10-week low, as traders anticipated Iran would fail to meet a looming U.N. deadline to halt its atomic fuel programme.

The market was also awaiting U.S. fuel inventory data to be released on Wednesday, although a predicted decline in stock levels was expected to be offset by concern over economic slowdown and faltering oil demand.

U.S. crude for October delivery rose 38 cents to .09 a barrel by 1217 GMT, while London Brent crude gained 51 cents to .37.

Both contracts on Tuesday closed below a barrel for the first time since June.

The breach of the key level was viewed as a strong pointer to lower prices, but analysts said a deeper selloff was being prevented by worries political tension could lead to supply disruption.

''There will be a limit to how low prices can fall this quarter. There are still a lot of geopolitical risks,'' said Eoin O'Callaghan of BNP Paribas.

''When there are milestones in the (Iranian) dispute, there tends to be a rally.'' The United Nations Security Council has told oil producer Iran to suspend nuclear enrichment by Thursday or face possible sanctions, but Iran has repeatedly said it will not comply.

''Peaceful nuclear energy is the right of the Iranian nation... it wants to use it and no one can stop it,'' Iranian President Mahmoud Ahmadinejad said on Tuesday.

Analysts were not expecting immediate action against Iran.

Russia and China have called for a return to talks, while key allies of Washington, Britain and France, have quashed U.S.

predictions of a swift resort to sanctions.

U.S. SUPPLY AND DEMAND For the next snapshot of the health of oil supplies in the world's biggest energy consumer, traders were awaiting U.S.

government data to be released at 1430 GMT.

Crude oil inventories were expected to have fallen by 1.5 million barrels last week as refineries boosted operating rates, while gasoline stocks were seen dropping by 700,000 barrels, according to a Reuters poll of analysts.

Analysts are decreasingly concerned about gasoline inventories.

The U.S. summer driving season is considered to end with next week's Labor Day holiday.

More attention could turn to data on gasoline consumption following figures on Monday that showed U.S. gasoline demand grew in June by less than half the rate previously implied.

The focus will also be on winter fuel supplies. Stocks of distillates, including heating oil, were forecast to have risen by 1.3 million barrels, the poll found.

REUTERS PKS VC1832