Oil rose above $126 a barrel on Monday on supply worries, lifted by concern over Iran's nuclear activities, further violence in OPEC member Nigeria, and a tropical storm that has formed near the Gulf of Mexico.

U.S. light crude for September delivery was up 77 cents at $125.87 by 8:17 p.m. EDT, after rising as much as $1.21 earlier.

London Brent crude was up 81 cents at $124.99.

"We've seen a lot of worries about demand slowing in the past couple of weeks but now it seems like the focus has switched back to supply concerns," said Gerard Burg, a commodities analyst at the National Australian Bank in Melbourne.

The United States said on Sunday that Iran has left the U.N. Security Council no choice but to increase sanctions on the Islamic republic for ignoring demands that it halt sensitive nuclear activities stirring concerns of a potential confrontation that could disrupt supply.

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The U.S. declaration came a day after an informal deadline lapsed for Iran to respond to an offer from the United States, Britain, France, Germany, China and Russia for talks on its disputed nuclear program.

Tehran has not formally responded to the offer. But Iranian President Mahmoud Ahmadinejad on Saturday vowed that Iran would not back down in its nuclear dispute with the powers, which have supported three rounds of U.N. Security Council sanctions.

In Nigeria, gunmen kidnapped two French expatriates near the country's oil industry hub of Port Harcourt in the restive Niger delta, military and security sources said on Sunday

More than a dozen gunmen late on Saturday ambushed patrons at a local bar in Onne in Rivers state and exchanged fire with navy personnel, resulting in at least three deaths, a security source said.

The latest violence follows a militant attack on two major pipelines owned by Royal Dutch Shell (RDSa.L: Quote, Profile, Research, Stock Buzz) last week, which cut Nigeria's crude oil output fell by a further 150,000 barrels per day.

Analysts said traders were also keeping a close eye on Tropical Storm Edouard, which quickly formed about 161 kilometers (100 miles) south of the Alabama

The Miami-based hurricane centre said the storm was expected to come ashore at close to hurricane strength in a few days on the Texas coast. Much of the U.S. offshore oil production was in the likely path of the storm, which could also threaten Gulf Coast refineries.

The Louisiana Offshore Oil Port said operations were normal on Sunday local time, while oil majors such as Chevron (CVX.N: Quote, Profile, Research, Stock Buzz), Marathon Oil Corp (MRO.N: Quote, Profile, Research, Stock Buzz), BHP Billiton Ltd/Plc (BHP.AX: Quote, Profile, Research, Stock Buzz)(BLT.L: Quote, Profile, Research, Stock Buzz) said they were watching the storm's development and forecast path.

Oil has fallen over $21, or 14 percent, from a peak above $147 a barrel on July 11, due to concerns about a slowdown in world economy and high fuel prices hitting consumption in top energy user the United States.

Reuters

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