Oil rose Monday after major exporter Iran warned that flows from the Gulf, which pumps nearly a quarter of the world's crude, would be endangered if Washington made a "wrong move" over Iran.

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The remarks from Supreme Leader Ayatollah Ali Khamenei raised fears the world's fourth biggest oil exporter might halt crude shipments over its nuclear standoff with the West.

Iranian officials previously have said Tehran would not use oil as a weapon.

U.S. crude traded 32 cents higher at $72.65 a barrel in afternoon activity after touching $73.84 earlier trading. London Brent rose 53 cents to $71.56.

"The threat, whilst remote, would be serious in the context of global oil markets operating with little more than 2 million barrels per day of spare capacity," a Citigroup report said.

Tension between Iran and the West over Tehran's nuclear program has helped drive oil's 20 percent rally this year.

U.S. Secretary of State Condoleezza Rice reacted to Khamenei's comments by counseling a wait-and-see approach.

Washington offered to join European countries in talks with Iran about its atomic work, but said Tehran must first suspend uranium enrichment. Iran so far has rejected the demand, saying enrichment is a national right.

President Mahmoud Ahmadinejad said Saturday Iran would consider proposals on incentives to stop nuclear work from the United States, Russia, China, France, Germany and Britain but insisted the crux of the package was unacceptable.

EU foreign policy chief Javier Solana was to present the proposals to Iran Tuesday.

Oil prices were also boosted by production problems at U.S. refineries during the start of peak summer fuel demand.

"Every bump in refinery operations and every tropical storm will keep gasoline prices quite bullish, relative to crude oil," PFC Energy said in a report.

The disruptions came at the start of what was expected to be another busy storm season in the U.S. Gulf, where hurricanes last year wrecked refineries and drove oil to record highs.

OPEC producers agreed last week to leave output limits unchanged and keep pumping at near full rates in a bid to ease prices, which they worry will spur inflation that could slow economic growth and sap oil demand.

OPEC linchpin Saudi Arabia said it cut output to 9.1 million barrels a day in April due to a drop in refinery demand, not a desire to lower stock levels, the Wall Street Journal quoted Oil Minister Ali al-Naimi as saying.

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