NYMEX crude pares gains from surge on storm fears

NEW YORK, July 21 (Reuters) - U.S. crude oil futures pared gains Monday morning after rising sharply earlier as Tropical Storm Dolly was about to move into the Gulf of Mexico and after inconclusive nuclear talks between Iran and world powers over the weekend.

On the New York Mercantile Exchange at 10 a.m. EDT (1400 GMT), August crude CLQ8 was up 54 cents or 0.42 percent at $129.42 a barrel, trading from $128.63 to $132.05.

The contract, which expires Tuesday, racked up losses of $16.30 or 11.23 percent last week in a four-day losing streak. It hit a record $147.27 on July 11.

"It looks like we are taking some of the earlier storm fear premium here because there have been no serious signs yet of what Dolly might do," said Phil Flynn, analyst at Alaron Trading.

In London, September Brent crude LCOU8 also trimmed gains and was up 44 cents or 3.38 percent at $130.63 a barrel, trading from $130.19 to $133.15.

Tropical Storm Dolly was about to emerge off the northern coast of the Yucatan Peninsula early Monday and move into the Gulf of Mexico where it could become a hurricane on Tuesday, the U.S. National Hurricane Center said in its latest report.

Weather models projected the storm would march across the southwestern Gulf and strike the South Texas coast in about three days. Some models showed a strike near the Texas border with Mexico, while others showed Dolly hitting further north along the Texas coast near Corpus Christi. [ID:nN21392062]

U.S. Secretary of State Condoleezza Rice warned Iran on Monday that it faced more sanctions if it defied a two-week deadline to agree to curb its nuclear program.

Rice said Iran's envoy to Saturday's talks, attended by senior U.S. diplomat William Burns, engaged in small talk rather than address the central issue of the offer of six world powers at Saturday's meeting in Geneva.