Oil Ends Up at $118.52 on Strike, Iran Tension

Oil prices rose sharply Friday on news that a ship under contract to the U.S. Defense Department fired warning shots at two boats in the Persian Gulf. Retail gas prices as expected rose further into record territory, nearing $3.60 a gallon.

Crude prices rose on initial reports that a U.S. ship had fired on two Iranian boats; the news raised concerns that a conflict between U.S. and Iranian forces could cut oil supplies from the region. A Navy spokeswoman said the origin of the boats was unclear.

The news was enough to send U.S. light, sweet crude for June delivery up to $119.55 before the contract retreated to settle up $2.46 at $118.52 a barrel on the New York Mercantile Exchange.

London Brent crude traded higher, after hitting a new record of $117.51 earlier in the session.

The incident worried investors because at first it appeared to be the latest in a series of encounters between U.S. forces and Iranian boats in the Gulf. Early this month, the USS Typhoon fired a flare at an Iranian boat that came within about 200 yards of the ship.

In January, several Iranian boats made what the Navy described as provocative moves near a U.S. ship in the Strait of Hormuz. And in December the USS Whidbey Island fired warning shots at a small Iranian boat officials said was rapidly approaching the ship.

On Friday, oil prices were already up before the report on news of a pipeline attack in Nigeria and a looming refinery strike in Scotland.

In Nigeria, the Movement for the Emancipation of the Niger Delta, or MEND, said its fighters hit an oil pipeline late Thursday, the fourth conduit the group has attacked in the past week. MEND said the pipeline belongs to a Royal Dutch Shell PLC joint venture. A Shell spokesman confirmed one of its pipelines had been hit, but provided no additional details.

Earlier this week, Shell said an earlier attack cut its Nigerian oil production by about 170,000 barrels a day.

Separately, workers at an ExxonMobil joint venture in Nigeria cut production by an unspecified amount to demand more pay.

Adding to the supply concerns, BP said it will shut down a 700,000 barrel-a-day pipeline system that carries oil from the North Sea to refineries in the U.K. on Saturday in anticipation of a strike at Scotland's Grangemouth refinery expected to begin Sunday. The refinery supplies power and steam to the pipeline; if it shuts down, the pipeline can't operate.

Oil's rise came as the dollar strengthened. A stronger dollar typically encourages selling by making commodities such as oil less effective hedges against inflation, and by making oil more expensive to overseas investors. Analysts say the dollar's steady decline over the past year is the chief culprit behind this year's rapid rise in oil prices.

But, notes Jim Ritterbusch, president of Ritterbusch and Associates in Galena, Ill., "that connection between oil and the dollar can be broken easily by supply issues," which drove trading on Friday.

At the pump, meanwhile, gas prices rose another 2.1 cents Friday to a record national average of $3.577 a gallon, according to AAA and the Oil Price Information Service. Gas prices have been following oil futures higher, but are also rising due to concerns about whether gasoline supplies are adequate to meet peak summer driving demand.

Analysts expect gas prices to continue rising for at least another month to $3.70 to $4 a gallon. To a large extent, how high gas prices peak depends on what oil does.

Lately, analysts have recently raised their oil price predictions to $125 to $130 a barrel. Earlier this week, the expiring May crude contract rose as high as $119.90 as investors scrambled to square positions.

However, the Federal Reserve is expected to cut interest rates less sharply next week than originally thought. Because rate cuts tend to weaken the dollar, a smaller than expected cut could push the dollar higher, and send oil prices down.

In other Nymex trading Friday, May gasoline futures rose 3.51 cents to settle at $3.0537 a gallon after earlier rising to a new trading record of $3.0815, and May heating oil futures rose 4.45 cents to settle at $3.3028 a gallon. May natural gas futures rose 17.3 cents to settle at $10.963 per 1,000 cubic feet.

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Associated Press writers Lolita C. Baldor in Washington, Sebastian Abbot in Cairo, Egypt, Edward Harris in Lagos, Nigeria, and Gillian Wong in Singapore contributed to this report.

(Copyright 2008 by The Associated Press. All Rights Reserved.)

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Oil settled up over $118 -- down from its intra-day high above $119 -- aafter a workers strike cut production in Nigeria and tensions rose between the United States and Iran.

U.S. light crude for June delivery surged, within striking distance of the all-time peak of $119.90 reached on Tuesday.

London Brent crude traded higher, after hitting a new record of $117.51 earlier in the session.

A ship contracted by the U.S. Military Sealift Command fired at least one shot toward an Iranian boat, a U.S. defense official said.

No further details were immediately available.

The United States in January said Iranian boats threatened its warships along a vital route for crude oil shipments.

Oil also found support from a significant cut in Nigerian production due to a workers strike and rebel attacks.

"You have everything coming together and that's lifting us off again," said Tom Bentz, analyst for BNP Paribas Commodity Futures in New York.

A strike by Nigerian workers at Exxon Mobil has forced the company to shut down some 200,000 barrels per day of crude oil output, a senior union official said.

Exxon has surpassed Royal Dutch Shell as the top foreign oil producer in Nigeria after Shell was struck by repeated militant attacks on its facilities.

Nigerian rebels said on Friday they had sabotaged an oil pipeline in the Niger Delta belonging to Royal Dutch Shell late on Thursday.

"Our candid advice to the oil majors is that they should not waste their time repairing any lines as we will continue to sabotage them," the Movement for the Emancipation of the Niger Delta (MEND) said in an emailed statement.

Shell confirmed the attack and said it was trying to assess the extent of the damage to the pipeline.

Shell has been forced to shut 169,000 bpd of Bonny Light crude oil output after a pipeline attack there a week ago.

In the North Sea, BP said it had begun shutting down UK's Forties oil pipeline in preparation for a planned strike at a major Scottish refinery this weekend.

The 700,000 barrel-a-day Forties pipeline carries about half of Britain's North Sea oil production.

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