Oil prices dipped below US$64 a barrel Thursday amid heightened tension in the Mideast as Iran's detention of 15 British navy personnel approached the one-week mark.
Iran, the world's fourth-largest oil producer, is located along the Strait of Hormuz, through which about two-fifths of the world's oil is transported. Traders worry that oil supplies could be disrupted if unrest escalates there.
In electronic trading in Singapore Thursday, light, sweet crude for May delivery fell 8 cents to US$64 a barrel on the New York Mercantile Exchange. The contract closed at US$64.08 a barrel Wednesday, its highest close since September.
Oil spiking briefly above US$68 a barrel in after-hours trading Tuesday on a rumors - denied by the U.S. military - that Iran had fired on a U.S. ship in the Persian Gulf.
"The hypersensitivity to the geopolitical situation is setting the market up for vastly increased volatility ahead," said Fimat USA analyst John Kilduff.
Iranian authorities have detained the British marines and sailors since last Friday on claims they had trespassed into Iranian territory. Britain maintains they were in Iraqi waters.
On Wednesday, Iran's foreign minister said Britain must admit the 15 entered Iranian waters in order to resolve a standoff over their capture.
Also buoying prices were the weekly petroleum supplies report from the United States. The Energy Department reported Wednesday that crude oil inventories slipped by 900,000 barrels last week to 328.4 million barrels. Stocks of gasoline and distillate fuel, which include heating oil and diesel fuel, also fell.
It was gasoline's seventh straight week of decline, a worrisome signal ahead of the summer driving season.
But traders remained focused on developments in Iran.
"The spike showed people what could happen if tensions do increase," said Eric Wittenauer, an energy analyst at A.G. Edwards in St. Louis.
In other key contracts, gasoline for April delivery stood at US$2.0590 a gallon, edging up again after closing at its first decline in five days. Heating oil meanwhile, was flat at U$1.8215 per gallon (3.8 liters).
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