Oil Rises a Seventh Day as Iran Conflict May Disrupt Supplies

Crude oil rose for a seventh day in New York on concern a dispute over Iran's detention of British servicemen could escalate, disrupting supplies from the Middle East.

U.K. Prime Minister Tony Blair warned yesterday of a ``different phase'' of efforts to release the 15 sailors and marines if negotiations fail. Oil had surged yesterday on speculation that the U.K. government had attempted a rescue raid.

``There are all these rumors because history teaches us that the U.K. has been pretty tough in dealing with these situations,'' said Dariusz Kowalczyk, chief investment strategist with CFC Seymour Ltd. in Hong Kong. ``The market is nervous if the Iranians don't back off and release the soldiers soon there could be some operation to free them and this could have consequences because pride is important for Iran.''

Crude oil for May delivery gained as much as $1.53, or 2.4 percent, to $64.46 a barrel in electronic after-hours trading on the New York Mercantile Exchange. It was at $63.89 at 12:45 p.m. in Singapore.

The contract settled at $62.93 a barrel yesterday, up 2 cents. Prices jumped $5 in seven minutes just before 5 p.m. New York time, to $68.09, the highest intraday price since Sept. 6.

``It's an indication of the level of concern people have around the possibility of a military conflict in the Middle East,'' said Andrew Harrington, commodities analyst at Australia & New Zealand Banking Group Ltd. in Sydney.

In London, Brent crude oil for May settlement climbed as much as $1.24, or 1.9 percent, to $65.84 a barrel in electronic trading on the ICE Futures exchange. It was at $65.69 at 12:47 p.m. Singapore time.

Gulf Exercise

The U.S. Navy yesterday started an exercise in the Gulf involving 15 warships and more than 100 planes. The maneuvers are the largest show of force in the Gulf since the 2003 invasion of Iraq, the Associated Press reported.

There is no U.S. military activity in the Gulf other than the previously scheduled exercises, U.S. Navy Commander Kevin Aandahl, a spokesman for the Fifth Fleet in Bahrain, said yesterday.

Iran has the second-biggest proved oil reserves. Almost a quarter of the world's oil flows through the Strait of Hormuz, a narrow waterway between Iran and Oman at the mouth of the Persian Gulf. The surrounding region, the Middle East, is responsible for almost a third of the world's oil output.

Oil reached a record $78.40 a barrel on July 14 on concern Israel's attack on Iranian-backed Hezbollah militia in Lebanon may spark a wider conflict.

Royal Navy

Iranian forces seized 15 Royal Navy sailors and marines in the Gulf on March 23, alleging they had crossed into its territorial waters while searching merchant vessels.

The dispute over their detention will be solved in a ``calm'' manner, Iran's foreign Ministry said yesterday without specifying how long it may take.

``We're seeing the reemergence of that Middle Eastern premium which we've had whenever we have some kind of conflict,'' said Jonathan Barratt, managing director of Commodity Broking in Sydney. ``There are other important factors including the build for the summer drive time and the capacities of refiners in the U.S. and the utilization of these refiners.''

Oil prices have gained 10 percent the past two weeks as the United Nations agreed new sanctions to stop Iran's nuclear research and gasoline futures surged to a seven-month high as rising U.S. demand and refinery break-downs sapped stockpiles.

Stockpiles, Hurricanes

An Energy Department report today will probably show U.S. gasoline inventories fell 2 million barrels last week, the seventh straight decline, based on the median estimate from a Bloomberg News survey of 14 analysts.

U.S. refineries probably operated at 86.8 percent of capacity, up 0.5 percentage point from the week before, according to the survey.

In France, workers agreed yesterday to continue a two-week old strike at the port of Marseille that has left 51 vessels stranded outside the Fos and Lavera oil terminals. Total SA's Feyzin refinery has cut output by about a third, according to the company.

``Clearly the strike is not helping because it reduces the potential for gasoline imports to the U.S.,'' said CFC Seymour's Kowalczyk. ``We really need an increase in U.S. capacity utilization which is not happening very fast.''

Gasoline for April delivery rose 2.2 cents, or 1.1 percent, to $2.095 a gallon in after-hours trading on Nymex.

Gasoline Demand

Gasoline demand in the U.S. peaks during the summer holidays starting on Memorial Day late May and ending Labor Day early September. The North Atlantic hurricane season runs from June 1 to Nov. 30.

Florida and the Gulf of Mexico, responsible for about 30 percent of U.S. oil production, are likely to face an increased threat from powerful storms this year, AccuWeather.com said in its initial 2007 hurricane outlook.

``This year's stronger storms are likely to cause the kind of disruption that will be felt in wallets and pocketbooks,'' Joe Bastardi, chief forecaster for State College, Pennsylvania- based AccuWeather, said yesterday.

source:www.bloomberg.com