Oil Hits 3-Month High After Iran Captures 15 British Sailors

Oil finished at a three-month high after Iran captured 15 British Royal Navy sailors, sparking a diplomatic incident at a time of tension over Tehran's nuclear program.

U.S. crude climbed 59 cents or 1% to settle at $62.28, adding to gains of more than $2 on Thursday. It was the highest close for the front month contract since December 22. For the week, New York crude rose $2.70 a barrel or 4.5%. It was the first weekly gain in the last three weeks.

Over the weekend, Iran said it is considering charging 15 British sailors and marines with illegally entering its waters, but it may give consular access to the navy personnel once the investigation into the incident is completed.

"The charge against them is the illegal entrance into Iranian waters and this issue is being considered legally," Iranian Foreign Minister Manouchehr Mottaki told reporters at the United Nations.

Britain's British Prime Minister Tony Blair denied the navy personnel had been in Iranian waters and said Tehran should be under no illusion how seriously Britain considers the detentions.

This comes as tensions with Iran are already high. On Saturday, the UN Security Council unanimously approved new arms and financial sanctions against Iran for refusing to suspend uranium enrichment.

The package of sanctions, aimed at curbing Iran's nuclear program, targets the country's arms exports, its state-owned Bank Sepah and the elite Revolutionary Guards. The 15-member body said it would suspend the sanctions if Iran halted its enrichment program.

The West has been locked in a protracted dispute with Iran over its nuclear program, which Iran insists is for peaceful purposes only.

The new measures are a follow-up to a resolution adopted Dec. 23 banning trade in sensitive nuclear materials and ballastic missiles, as well as freezing assets of individuals and institutions associated with atomic programs.

Ahead of these actions this weekend, oil prices have also found support from reduced U.S. gasoline supplies ahead of peak summer driving demand.

Some analysts said these concerns were exaggerated given that refiners were expected to emerge from maintenance sooner than usual this year.

But gasoline prices settled at a seven month high with a 4.08 cents or 2.1% today to $1.9983 a gallon. RBOB gasoline traded as high as $2.02 on Friday. For the week, gasoline was up 9.12 cents, its ninth straight weekly gain.

Oil markets had fallen sharply after a wave of cross-asset selling triggered at the end of last month by the steepest fall in a decade on the main Shanghai Composite Index and concerns the world economy could be under strain.

But dealers said investors had been reassured by hints from the U.S. Federal Reserve that it was less inclined to raise interest rates, boosting hopes for a near-term cut in borrowing costs.