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The week-old standoff between London and Tehran over the Iranian detention of 15 British naval personnel sent oil prices surging past 69 dollars here — a near seven-month high — and analysts warned they could rise further.
 
British Prime Minister Tony Blair said Friday that Britain wanted Iran to be “increasingly isolated” but vowed to be patient in managing the crisis.

In London trade, the price of Brent North Sea crude for May delivery reached 69.14 dollars a barrel — the highest level since September 4 last year.

It later Friday stood at 68.91 dollars in electronic trading, up 1.03 dollars.

New York’s main oil futures contract, light sweet crude for delivery in May, climbed 63 cents to 66.66 dollars in electronic deals before the official opening of the US market.

New York crude had Tuesday soared to 68.09 dollars — a level last seen in early September — on rumours of military conflict with Iran.

“It wouldn’t surprise me if we saw 70 (dollars a barrel) quite easily or beyond,” said Simon Hayley, senior international economist at Capital Economics.

Iran is the world’s fourth biggest producer of crude oil and some analysts believe there is a risk that the Islamic Republic could move to disrupt its exports should the crisis with Britain escalate.

“This has the potential to escalate into a full-blown crisis,” Bank of Ireland analyst Paul Harris said.

“The fact that the (strategic Iran-dominated) Straits of Hormuz could come into play is a risk, given that the majority of oil traffic goes down this channel.”

Prices have surged this week as Britain froze ties with Iran after it refused to release 15 British sailors and marines it had captured on March 23. Iran insists that the personnel were detained for being in Iranian waters but Britain maintains they were inside Iraqi waters.

Further fuel has been added to oil prices since Thursday when Iran decided against releasing the only female British sailor held among the 15.

A defiant Iran said it would not release as promised Faye Turney because of Britain’s “incorrect” attitude in the growing crisis between the two countries.

Oil prices are also being supported by Iran’s refusal to bow to international pressure over its disputed nuclear programme.

Traders said some people were guilty of widening the geopolitical premium by pushing the price up prematurely.

Hayley of Capital Economics said prices were trading at about 5.0 dollars above the level they would be if traders reacted solely to the fundamental factors of crude’s current supply and demand.

Despite the week’s spike to crude — prices have shot by about 6.0 dollars or more than 9.0 percent since last Friday — they remain a long way off record highs of above 78 dollars a barrel struck last year.

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The United States could use its large Strategic Petroleum Reserve to counter a short-term disruption in Middle East Gulf oil shipments caused by tensions with Iran, the head of the U.S. Energy Information Administration said Wednesday.

“We have substantial emergency supplies” of oil to offset problems in Gulf shipping,” EIA’s Guy Caruso told reporters.

Oil prices shot up this week as traders worried that a dispute the West has with Iran’s nuclear program and Iran’s continued holding of U.K. Royal Navy personnel could escalate and result in disruptions to shipping through the Strait of Hormuz, which handles about a third of the world’s seaborne oil shipments.

“There is no need to panic” among oil traders over possible Gulf oil shipping disruptions, Caruso said.

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Gulf rumours send US crude to six-month high

Escalating geopolitical tensions and tightening supply caused a jump in oil prices Wednesday, taking US crude futures to a six-month high.

The initial spike was dramatic. Traders said the oil price jumped $5 a barrel – more than 7 per cent – in just seven minutes shortly after the close of US trade on Tuesday, caused by rumours that Iran had fired a missile at a US warship in the Persian Gulf.

The rumour was swiftly denied by the US, but crude prices remained more than 2 per cent higher Wednesday, reminding investors of the fragile geopolitical situation in the Gulf. Edward Meir at Man Financial said: “Although the missile story turned out to be false, the Iranian abduction of British sailors is very real and has yet to play itself out.”

Markets have become increasingly nervous after 15 British sailors and marines were captured last week. Since then, Nymex crude has risen by nearly 13 per cent on fears the situation would not be solved diplomatically.

Oil prices were also supported by an unexpectedly sharp tightening in supply as data from the US energy department showed stockpiles of crude in the US decreased by 900,000 barrels last week. Crude inventories were expected to have increased by about 1.1m barrels during the period.

Kevin Norrish at Barclays Capital said: “The nervousness of the market in response to the steady ratcheting up of tension with Iran, and a tightening fundamental background provides further evidence that oil price risks are becoming heavily skewed to the upside.”

By midday in New York, Nymex West Texas Intermediate for May delivery was up $1.53 to $64.46 a barrel, while May ICE Brent climbed $1.53 to $66.13.

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