PERTH, July 21 (Reuters) - Oil rose over $1 to top $130 a barrel on Monday after inconclusive talks between Iran and world powers over the weekend over Tehran's disputed nuclear programme.

Prices were also lifted by worries about Tropical Storm Dolly, which was heading for Mexico's Yucatan Peninsula, but posed no immediate threat to Gulf of Mexico oil installations slightly south of its projected path.

U.S. light crude for August delivery was up $1.18 to $130.06 at 2228 GMT, partially reversing losses in the previous sessions.

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

Prospects of ending the row looked dim as Iran's top nuclear negotiator Saeed Jalili said Iran would not discuss a demand to freeze sensitive nuclear activities or face tougher sanctions, though Iran's president described the talks as a step forward on Sunday.

A U.S. State Department spokesman said Washington hoped Iran now understood that it had a choice between cooperation and "confrontation, which can only lead to further isolation".

Worries that Tropical storm Dolly could hit the Gulf of Mexico also boosted oil prices.

Tropical Storm Dolly headed for Mexico's Yucatan Peninsula bearing heavy rains and winds, but the U.S. National Hurricane Center in Miami said it posed no immediate threat to Gulf oil installations slightly south of its projected path.

Dolly, the fourth such storm of the 2008 Atlantic hurricane season, was in the western Caribbean about 165 miles (265 km) southeast of Mexico's popular tourist island of Cozumel.