U.S. crude oil futures ended more than a dollar higher on Wednesday as Iran's confrontation with Britain and the West helped lift prices along with a government report showing a surprise draw in U.S. crude inventories.
Front-month May crude ended the open-outcry floor trading session up $1.17 or 1.9% at $64.10 a barrel, trading from $63.36 to $64.96, on the New York Mercantile Exchange. Crude oil stocks fell by 900,000 barrels last week compared with forecasts for a rise of 1.6 million barrels.
Rumors of a naval clash between Iran and U.S. or British military forces, quickly denied by Washington and London, briefly pushed U.S. crude up around 8% to $68 a barrel late Tuesday.
Refined products futures were mixed, with gasoline finishing slightly weaker and heating oil surprisingly strong for this late in the heating season.
London Brent crude was up $1.34 at $65.94 a barrel. The rise extended a six-day rally that has added about 10% to prices, pushing them nearer the danger zone for consumer nations who fear they could stymie economic growth.
U.S. officials denied market rumors of a clash with Iran, while Britain denied another rumor that it had sent troops to release 15 British sailors and Marines being held by Iran.
"Although it didn't happen this time, people think it could happen," said Christopher Bellew of Bache Financial of concerns that conflict had broken out between Iran and the West.
Equity markets fell on the Iran tensions and took another dive after Federal Reserve Chairman Ben Bernanke said uncertainties about the U.S. economic outlook had increased.
"The main equity markets remain on fragile feet, we are not sure of their ability to withstand a surge in oil prices," said Olivier Jakob, of oil consultancy Petromatrix.
Weekly U.S. oil inventory data showed a seventh-straight fall in gasoline stocks in the world's biggest consumer as it prepares for peak summer demand. But a drop of 300,000 barrels of gasoline in the week ending March 23 fell short of analysts' forecasts for a 1.8-million-barrel draw. Gasoline has been leading the oil market higher as U.S. supplies have dropped steadily ahead of the peak demand season.
"The lower-than-expected gasoline draw is a sign that gasoline production is picking up," said Eric Wittenauer, an analyst at broker A.G. Edwards.
In Europe, a strike by workers at the French Mediterranean oil terminal Fos-Lavera, entering its third week, has begun to hit refinery output and also raised concerns over Europe's ability to export fuel to the United States.
Oil's surge to $68.09 on Tuesday was its highest since Sept. 6 and highlighted anxiety over supplies from the Gulf and OPEC member Iran. So far there has been no disruption to Iran's daily shipments of around 2.2 million barrels.
The rumors surfaced as a second U.S. aircraft carrier moved into the Gulf to carry out military exercises. Iran's navy began a week of exercises in the Gulf last Thursday. Iran said it would free a woman who was among the 15 British sailors later Wednesday or Thursday.