Oil Prices Rise Above $64 A Barrel

Wednesday, March 28th 2007, 7:42 am
By: News On 6

NEW YORK (AP) _ Oil prices rose by more than $1 a barrel Wednesday on rumors _ denied by the U.S. military _ that Iran had fired a missile at a U.S. ship in the Persian Gulf.

Iran, one of the biggest oil producers, is located along the Strait of Hormuz, through which a large portion of the world's oil is transported. Traders worry that if unrest escalates there, oil supplies could be disrupted.

Falling U.S. inventories of crude oil, gasoline and distillates added to supply concerns, keeping prices high.

Rumors about a military confrontation spurred panic buying in after-hours trading Tuesday, sending oil prices above $68 in a matter of minutes. Rising tensions between Iran, a major oil producer, and the West have created a potentially dangerous situation in the Gulf and markets are jumpy.

Prices fell back within a couple hours, although they remained higher than Tuesday's settlement price of $62.93 a barrel. Another possible calming factor was word from Iran's foreign minister that a detained female British sailor would be freed on Wednesday or Thursday.

Light, sweet crude for May delivery on the New York Mercantile Exchange rose $1.61 to $64.54 a barrel in late morning trading.

Brent crude for May delivery rose $1.53 to $66.13 a barrel on the ICE Futures exchange in London.

``The major concern is that if the rumor had been true, you'd have a major disruption to supply,'' said Andrew Harrington, an analyst with ANZ Global Natural Resources in Sydney. ``You have about a quarter of the world oil coming through the Straits of Hormuz and any military conflict would severely disrupt those supplies, which obviously sees the price spike.''

The surge indicates the nervousness in markets, he said.

``The political premium had been taken out of the price, and as soon as any signs of new development takes place, they get put back into the price,'' Harrington said.

The U.S. Energy Department reported that crude oil inventories slipped by 900,000 barrels last week to 328.4 million barrels. Traders had been expecting a gain of 1.1 million barrels, according to analysts polled by Dow Jones Newswires.

Inventories of gasoline and distillate fuel, which include heating oil and diesel fuel, also declined as traders expected. Gasoline supplies fell by 300,000 barrels to 210.2 million barrels and distillates fell by 700,000 barrels to 118.0 million barrels.

Refineries operated at a capacity of 87 percent last week, slightly higher than the previous week.

Gasoline futures rose .45 cents to $2.0775 a gallon.

Heating oil futures were up 5.61 cents to $1.8425 a gallon on the Nymex, while natural gas prices climbed 20.8 cents to $7.711 per 1,000 cubic feet.

Vienna's PVM Oil Associates noted OPEC forecasts that global crude stocks could grow by around 700,000 barrels a day in the second quarter of this year and said ``this would be a far more bullish development'' than in 2006 and 2005, when stocks increased by far greater amounts.

Still, concerns about the Middle East were likely to remain the main driver of prices. Tehran continues to hold 15 British sailors it captured on Friday, giving no indications of their whereabouts despite repeated pleas for their release from Britain, the United States and the European Union.

Also, the U.S. kicked off a military training operation in the Persian Gulf on Tuesday that commanders said was meant to send a warning to Iran. The operations are the largest show of U.S. force in the Gulf since the 2003 invasion of Iraq.

``A large part of the oil market, at least in the immediate future, will be very much focused on the events in the Middle East,'' Harrington said. ``That will take precedence.''