Oil higher on stimulus hopes, Iran tensions

(Reuters) - Oil prices rose on Monday, lifted by hopes that signs of economic slowing will prompt stimulus measures, especially in China, and by news a U.S. Navy vessel near the United Arab Emirates fired on a small boat that failed to heed warnings.

The U.S. Navy incident followed more tough talk over the weekend from Iran about shutting the Strait of Hormuz as Iran's dispute with the West over Tehran's nuclear program continues to keep the region and oil traders tense.

China's Premier Wen Jiabao, in remarks published on Sunday, said efforts to stabilize the economy are working and the government will step up efforts in the second half of the year to increase policy effectiveness and foresight.

"Prospects of more monetary easing are growing, supporting risk appetite - in China first, as the government takes policy measures to protect economic growth, but also in the U.S.," said analysts at BNP Paribas.

Brent August crude rose $1.11 to $103.51 a barrel by 1:27 p.m. EDT (1727 GMT), having swung from $102.07 to $103.60.

Brent September crude was up $1.35 at $102.77.

After closing above its 50-day moving average on Friday, front-month Brent's next key resistance is expected at $103.74 - the 38.2 percent Fibonacci retracement of the second-quarter retreat from the 2012 peak above $128.

U.S. August crude was up 45 cents at $87.55 a barrel, having traded from $86.41 to $87.84, above and below the U.S. front-month crude 50-day moving average at $87.19.

Total crude trading volumes were relatively light, with both Brent and U.S. crude turnover more than 40 percent below their 30-day averages.

Brent's premium to U.S. crude increased and hovered above $16 a barrel.

Disappointing U.S. retail sales data initially weighed on Wall Street equities and limited U.S. crude gains and both Brent and U.S. contracts saw choppy trading.

The euro turned higher against the U.S. dollar, and a weaker dollar index .DXY added support for dollar-denominated oil prices.

"The euro had a big reversal and we're following along," said Mark Anderle, a trader for TAC Energy in Dallas.

Oil prices rallied on Friday when China's second-quarter GDP figures, in line with expectations for slower growth, dispelled fears China was heading for a hard landing.

IRANIAN THREATS

A naval commander in Iran's elite Islamic Revolutionary Guard Corps (IRGC) said on Saturday that Iran will increase its military presence in international waters and that Iranian naval forces have the capability to prevent even "a single drop of oil" from passing through the Strait of Hormuz.

Iran's parliament is considering a bill calling for the strait to be closed until sanctions against Iran are lifted.

"The price reaction to the news of the boat being fired on by the U.S. Navy just shows how fragile the situation is considered to be," said Phil Flynn, analyst at Price Futures Group in Chicago.

The United States on Thursday attempted to ratchet up sanctions intended to limit Iran's ability to export oil, with the Treasury department exposing dozens of front companies, tankers and banks that were helping Tehran evade restrictions.

The measures underpin U.S. and European Union sanctions designed to deprive Iran of oil revenue and pressure Tehran to curb its nuclear program, which Tehran maintains is solely for peaceful purposes.

(Additional reporting by Selam Gebrekidan in New York, Claire Milhench in London and Manash Goswami in Singapore; Editing by Phil Berlowitz and David Gregorio)