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Oil Settles Above $66 at Nearly 7-Month High

Oil prices surged more than 3% on Thursday as the standoff over British sailors in Iranian custody and U.S. naval actions in the Gulf escalated supply concerns.

U.S. crude rose for the eighth day in a row -- up $1.95 to $66.03 after touching $66.50 earlier, extending a rally to around 10% since March 20. It was the highest settle price since September 8.

Iran, the world's No. 4 oil exporter, suspended an offer to release the only woman among the 15 British naval personnel it was holding.

Tehran detained the sailors and marines on Friday, accusing them of straying into Iranian waters, which Britain denies. The incident occurred shortly before the United Nations imposed
new sanctions over Iran's nuclear program.

"A lot of tensions involving Iran is definitely sending prices higher," said Amanda Kurzendoerfer, commodity analyst at Summit Energy in Louisville, Kentucky.

The United States has been conducting naval exercises in the Gulf and has just sent another aircraft carrier to the region to replace one of two already there.

Concerns over the possible loss of Iran's oil exports of around 2.2 million barrels per day have kept markets on edge. U.S. oil jumped to above $68 a barrel late Tuesday on rumors of a clash between U.S. or British forces and Iran.

"The current state of tension between the U.S. and Iran makes it probable that there will be other incidents and strategic plays until the next U.N. sanction review in 60 days," said Olivier Jakob, an analyst at Petromatrix.

Iran borders the Strait of Hormuz, conduit for roughly two-fifths of all globally traded oil.

Prices have also been supported by U.S. gasoline, which has seen stocks fall in the past two months, Kurzendoerfer said. "The summer driving season is coming and the market is speculating whether we will have adequate gasoline supply."

NYMEX April RBOB gasoline settled up 7.83 cents or 3.8% to $2.1355 which marked the loftiest close since August 9. It posted a low of $2.0473 earlier.

NYMEX April heating oil rose 4.98 cents or 2.7% to $1.8772, trading between $1.8125 and $1.8914. It was the highest settle since September 7.

French Strike

The secretary-general of the Organization of Petroleum Exporting Countries said on Wednesday there was no need for the group to pump more as the price rises were due to political tensions, not a shortage of supply.

Economic concerns affecting oil, such as the strength of the U.S. economy, have taken more of a back seat amid the tensions over Iran.

Federal Reserve Chairman Ben Bernanke on Wednesday highlighted increased uncertainty about the U.S. economic outlook. But data on Thursday showed an unexpected drop in U.S. weekly unemployment benefit claims and stronger U.S. growth in the fourth quarter of last year then previously thought.

A strike by workers at the French Mediterranean oil terminal Fos-Lavera, in its third week, has begun to affect refinery output and has raised concerns over Europe's ability to export fuel to the U.S. market. Strikers were meeting with port and Gaz de France officials to end the strike.

Some refineries could start shutting down as soon as Friday, if the dispute at the world's third-biggest oil port is not resolved, operators said.

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