Oil hits 9-month high above $71

LONDON, May 24 (Reuters) Oil hit a nine-month high above on Thursday, propelled by a strike threat to Nigeria's hobbled output and a report by U.N. nuclear monitors that opened the way to tougher sanctions against Iran.

London Brent crude, now a more accurate indicator than U.S. oil, was up 74 cents at .34 a barrel by 1407 GMT, after hitting .42, the highest since August 28, 2006.

U.S. crude traded down 10 cents at .67.

Prices steamed higher on Wednesday after U.S. warships put on a show of force off Iran's coast, coinciding with a report by U.N.

monitors that Tehran had expanded its nuclear programme.

On Thursday the U.S. navy began war games.

''That played into the price action...It was a knee-jerk reaction to the headlines,'' said Mike Wittner of investment bank Calyon.

The rally accelerated on Thursday when workers at Nigeria's state oil company began an indefinite strike and unions said they would target oil output if their demands were not addressed within days.

Militant attacks have already shut nearly a quarter of production in the world's eighth-biggest oil exporter.

The Iran tension and new threat to Nigeria's exports added to concerns about fuel supplies in the world's top consumer the United States, where gasoline inventories have been rising but remain below average ahead of peak summer demand.

''The gasoline situation remains critical...Stocks stand at a seasonal low with the driving season officially set to kick off this weekend,'' Citigroup said in a research note.

Militant attacks have cut production of gasoline-rich crude from Nigeria by 695,000 barrels per day.

''Two big things are keeping prices up, the Nigerian and gasoline situation,'' said Tony Nunan of Mitsubishi Corp.

Calyon's Wittner said crude supplies in the Atlantic basin were relatively tight because of the closure of Nigerian oilfields and reduced North Sea loadings due to maintenance. At the same time, refineries were cranking up their operations.

Oil prices have more than trebled since the start of 2002 and hit a record .40 in July 2006. But the world economy has continued on a growth path.

Some analysts are forecasting prices could easily rally to record levels above a barrel this summer.

''We don't see any particular reason why it couldn't hit an all-time high,'' said Paul Horsnell of Barclays Capital.

The president of one of the world's top oil trading houses said he believed prices were nearing the point where demand would suffer, however.

''My view is that we are pretty close to demand destruction -- we are within 10-20 percent where we see reduced demand rates of growth,'' Ian Taylor, president of Swiss-based Vitol Group, said at a conference in Singapore.

REUTERS SR GC2032