Crude oil rose from a seven-week low as traders viewed this week's 3 percent decline as an opportunity to buy futures contracts.
Israel's top military commander said he told Pentagon officials that force may be needed to stop nuclear research by Iran, the Middle East's second-largest producer. Oil fell earlier as a stronger dollar limited the appeal of commodities as a currency hedge and after data indicated that prices are cutting demand in the U.S. and Japan.
``This market has become very oversold after prices dropped $5 or so this week, so what we're seeing this morning is a modest and quite probably temporary recovery,'' said Christopher Bellew, senior broker at Bache Commodities Ltd. in London.
Crude oil for September delivery advanced as much as $1, or 0.8 percent, to $125.44 a barrel, on the New York Mercantile Exchange, trading for $125.13 at 1:40 p.m. London time.
Yesterday, oil dropped $3.98, or 3.1 percent, to settle at $124.44 a barrel, the lowest close since June 4.
Iran, which produced about 3.85 million barrels a day last month, has warned it may blockade the Straits of Hormuz, the export channel for a quarter of the world's crude, if it's attacked.
``We all realize, both the Americans and us, that all options must be prepared,'' Israeli Lieutenant-General Gabi Ashkenazi said in an interview from Washington on Israel Radio. ``There is no doubt that diplomacy must be given priority.''
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