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Oil prices climb above US$66 a barrel as U.K.-Iran tension escalates

Oil prices continued to soar on Friday as the political standoff between Britain and Iran over the detainment of 15 marines and sailors hardened, raising fears of interruptions to the oil supply through Iran.

Light, sweet crude futures rose 52 cents to US$66.55 a barrel in European electronic trading on the New York Mercantile Exchange, from Thursday's six-month record close of US$66.03.

Brent crude for May jumped US$1.07 to US$68.25 a barrel on London's ICE Futures exchange.

"The market is very much factoring in a worst-case scenario," said Mark Pervan, a commodities analyst at Daiwa Securities in Melbourne. "Other fundamentals have been pushed to the side."

The crisis deepened Friday as British Prime Minister Tony Blair denounced Iranian TV footage of two of the captured navy personnel and warned Iran that it "will face continued isolation" if it persists in holding the captives.

Iran detained the group last week while they were patrolling near the mouth of the Shatt al-Arab waterway for smugglers, and a top official said the captives may be put on trial. The incident comes several months into a standoff between Iran, the fourth-largest oil producer, and the United Nations over the country's nuclear program.

Iranian TV has shown two of the personnel - a female sailor and a male marine - apologizing for straying into Iranian waters. Britain maintains the group were clearly in Iraqi waters.

"I don't know why the Iranian regime keeps doing this, all it does it heightens people's sense of disgust," Blair said. "Captured personnel being paraded and manipulated in this way, it doesn't fool anyone."

Worries related to Iran - which is also located along a key waterway in the oil trade - have led traders to put an extra premium on oil prices that are already high due to seven straight weeks of declines in U.S. gasoline inventories.

Traders are not saying they believe war with Iran is likely, but in an environment of high demand and falling domestic supplies, they maintain that the effects of a large-scale conflict on the energy markets could be huge.

Iran is located along the Strait of Hormuz, through which tankers ship about 17 million barrels of crude oil a day, according to the U.S. Energy Information Administration. That accounts for two-fifths of the world's crude oil traded by tanker, and about one-fifth of total oil production.

The exports exiting the narrow waterway are bound for the United States, Western Europe and Japan.

In other Nymex trading Thursday, heating oil rose 1.77 cent to US$1.8949 per gallon, and natural gas was up 1.6 cent to US$7.625 per 1,000 cubic feet. Gasoline futures held steady at US$2.1355 a gallon.