Oil rises as Dolly threatens Gulf of Mexico

NEW YORK (Reuters) - Oil rose on Monday as Tropical Storm Dolly barrelled into the Gulf of Mexico, stoking concerns of disruptions to offshore oil and gas production.

U.S. crude climbed $1.09 to $129.97 a barrel by 12:11 p.m. EDT (5:15 p.m. British time) after concerns about U.S. demand knocked prices from record highs over $147 a barrel last week.

London Brent crude rose $1.20 to trade at $131.39 a barrel.

The U.S. National Hurricane Centre warned the storm could reach hurricane strength on Tuesday, but the U.S. Energy Information Administration said on its current path it was likely to miss major oil producing areas but could threaten some coastal refineries later in the week.

Shell Oil Co began flying workers from offshore platforms as a precaution, while many other oil companies with installations in the Gulf of Mexico said they were closely watching the storm.

"Although direct impact on oil infrastructure is expected to be limited, there is the possibility of precautionary rig evacuations," said Jim Ritterbusch, president of Ritterbusch & Associates.

In 2005, hurricanes Katrina and Rita ripped through the Gulf of Mexico -- home to more than a quarter of U.S. oil production and around 15 percent of natural gas output -- shutting offshore rigs and coastal refineries.

Further support came from ongoing tensions between the West and Iran over Tehran's nuclear program, which the West fears could be used to make nuclear weapons.

Major powers on Saturday gave Iran two weeks to answer calls to rein in its nuclear program or face tougher sanctions after talks ended in a stalemate despite unprecedented U.S. participation.