Oil jumps on rising Iran-Israel tensions

By Richard Valdmanis

NEW YORK (Reuters) - Oil prices rose more than $3 on Friday amid escalating tensions between Israel and Iran and supply disruptions in Nigeria triggered by militant attacks on a major offshore field.

The gains marked a reversal from heavy losses Thursday that had been triggered by news China was raising domestic fuel prices -- a move that could slow demand growth in the world's second largest energy consumer -- and expectations Saudi Arabia was planning a 6 percent output hike.

"The petroleum markets rebounded ... on worries that Israeli military exercises held in the first week of June might have been preparation for a strike against Iranian nuclear facilities," said Tim Evans, energy analyst for Citi Futures Perspective in New York.

U.S. July crude, which was expiring on Friday, rose $3.12 to $135.05 a barrel by 5:45 p.m. British time, off highs of $136.80. London Brent was up $3.06 at $135.06.

A hardline Iranian cleric said on Friday that Israel and its U.S. ally would receive a "slap in the face" if they speak of using force against the Islamic Republic, a member of the Organization of Petroleum Exporting Countries.

The comment came after a report citing U.S. officials saying that Israel appeared to be rehearsing for a bombing raid on Iran's nuclear facilities.

Energy experts are concerned any conflict in Iran could lead to a shutdown of the Strait of Hormuz, a waterway separating Iran from the Arabian Peninsula, through which roughly 40 percent of the world's traded oil is shipped.

Adding to oil's gains Friday, Royal Dutch Shell shut 220,000 barrels of daily production in Nigeria after militants in speedboats attacked the Bonga offshore oil facility.