Oil Rebounds on Iran Deadline

June crude is above $71 a barrel.
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Updated from 1:04 p.m. EDT

Oil prices ended higher Friday after the U.N.'s nuclear watchdog confirmed Iran was enriching uranium in defiance of Security Council resolutions.

June crude rose 91 cents to close at $71.88 a barrel on Nymex. Iran has enriched small amounts of uranium and separated plutonium, which can be used to develop weapons, the

Associated Press

reported, citing the International Atomic Energy Agency.

The report will likely prompt a fight among Security Council members next week when the body meets. Great Britain and the U.S. have pressed for economic sanctions, while Russia and China have advocated for more diplomacy.

The Security Council gave Iran until today to cease enriching uranium, but Iranian officials have flouted those requests and said they will expand their efforts and may export the technology to other countries. On Friday, Iranian President Mahmoud Ahmadinejad said Iran "does not give a damn" about the impending deadline, the

BBC

reported.

The West suspects Iran's nuclear-development activities are a cover for weapons production, a claim Iran denies. After a two-year hiatus, Iran restarted small-scale uranium enrichment in March, ostensibly to produce electricity for civilians.

Oil prices have risen as the conflict has escalated, with futures clearing $75 a barrel last Friday. But June crude had fallen in four consecutive sessions on word of higher inventories and promises from OPEC to maintain production, and President Bush's curtailment of additions to the country's strategic petroleum supply. A surprise increase in Chinese interest rates on Thursday intended to cool a hot economy has also dampened oil prices.

"The market is speculating that slower growth in China, sufficient commodity supplies in the U.S. and moderating U.S. growth may mean that the recent run-up in commodity prices is overdone and that we are due for a correction in the not-too-distant future," said Bart Melek, senior economist at BMO Nesbitt Burns in Toronto.

Traders have been focusing on the Iran impasse because the country controls the world's second-largest oil and natural-gas reserves. In the event of a trade embargo or air strike, oil supplies would likely be cut and prices would skyrocket.

Reduced crude exports from Nigeria, Africa's largest producer, have also underpinned energy prices. Rebels have attacked pipeline and platforms and kidnapped workers, shutting down production by a quarter, or 500,000 barrels, out of a total 2.2 million barrels per day.

Royal Dutch Shell

(RDS.A)

has suffered the most in the attacks and seen 455,000 barrels of crude lost per day. Security problems have kept Shell from restarting production, and

Exxon Mobil

(XOM) - Get Report

briefly evacuated non-essential workers from an export terminal this week.

Venezuelan President Hugo Chavez has been clamping down on the oil industry, raising royalties and taxes and taking over privately held oil fields.

Eni

(E) - Get Report

and

Total S.A.

(TOT) - Get Report

each lost oil fields when they refused government requests to hand over control of them to a state-run company. Other oil companies, like

ConocoPhillips

(COP) - Get Report

and

Anadarko

(APC) - Get Report

agreed to new production sharing agreements The moves are expected to cost petroleum companies billions of dollars in profit.

During a morning conference call Friday, Anadarko's chief executive Jim Hackett said production will drop 3% this year due to new contract negotiations. Output is expected to come in between 161 million and 166 million barrels. Hackett said Venezuela represents only 2%, or $350 million, of its portfolio.

The Venezuelan government is also discussing additional royalty and tax increases and forming joint ventures with oil companies in the Orinoco River Basin, the country's largest source of crude. But Chevron officials cautioned in a morning conference call that the move may not happen for some time.

"It's way too early to speculate on what will happen with extra heavy oil," said Steve Crowe, Chevron's chief financial officer on Friday.

Crude prices have driven up the rest of the energy complex, with unleaded gasoline climbing 2 cents to $2.09 a gallon and heating oil rising 3 cents to $2.01 a gallon. The expiration of both April contracts has added some volatility to prices.

Natural gas shed 25 cents to settle at $6.56 per million British thermal units, the contract has fallen 13% this week due to slackening demand. Over the next few months, utilities and other gas distributors will need less gas from producers because they have so much in storage. Traders are expecting demand to slow down since there is so much in storage. Melek forecasts natural gas will fall to $6 per million British thermal units.

Energy prices have been moving up, even though there are plenty of inventories to cover any short-term supply glitches. Inventories of natural gas are 32% higher than last year, crude supplies are 6% greater, and distillates have risen 11% over last year, according to the U.S. Energy Department's weekly updates.

Soaring crude prices have boosted the bottom line at energy companies.

Chevron

(CVX) - Get Report

reported net income climbed 49% to $4 billion, or $1.80 a share. Sales jumped from $41.6 billion to $54.6 billion due to higher crude prices and the acquisition of Unocal. Chevron's stock added 74 cents to $60.72.

Net profit at Anadarko increased 35% to $661 million, or $2.84 a share, and revenue jumped 28% to $1.95 billion despite lower production during the first quarter. Earnings missed analysts' projections of $2.91 a share on revenue of $2.04 billion.

Shares of Anadarko dipped $1.84 to $104.89.