Oil up as supply fears outweigh Saudi boost

By Rebekah Kebede

NEW YORK (Reuters) - Oil rose on Monday as Nigerian supply disruptions and escalating tensions between Israel and Iran outweighed Saudi Arabia's pledge to raise output and keep markets well-supplied.

U.S. crude settled at $136.74 a barrel, up $1.38. London Brent crude was up $0.99 at $136.24 a barrel.

"Bellicose rhetoric between Israel and Iran and escalated militancy in Nigeria reduced what little optimism there was surrounding the Saudi's meeting in Jeddah over the weekend," John Kilduff, senior vice president at MF Global, wrote in a research note.

Nigeria's senior oil workers union began a limited strike at Chevron on Monday. While the stoppage has not disrupted production yet, it added to concerns about supplies from the OPEC nation after militant attacks shut 340,000 barrels of daily production last week.

European Union approved new sanctions on Iran, including an asset freeze on its biggest bank, over its refusal to meet demand to end its nuclear program.

"The No. 1 issue in the market today is the strike in Nigeria. But traders are also uneasy about the agreement among European Union states to impose new banking sanctions against Iran, which comes on the heels of increasing tensions between Israel and Tehran," said Phil Flynn, an analyst at Alaron Trading in Chicago.

Concern over tensions between Iran and the West over Tehran's nuclear program have supported prices over the past year.

Israel carried out a large military exercise earlier this month which appeared to be a rehearsal for a potential bombing of Iran's nuclear facilities, according to a New York Times story.