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Oil ends atop $62, up 4.5% on week after Iran seizes U.K. sailors
Crude end higher for the week; reformulated gas is Friday's biggest gainer
By Myra P. Saefong, MarketWatch
Last Update: 3:16 PM ET Mar 23, 2007
SAN FRANCISCO (MarketWatch) -- Crude-oil futures climbed past $62 a barrel Friday to close at their highest level in two weeks as Iran's seizure of 15 British naval personnel off the coast of Iraq triggered concerns over disruptions to crude production in the oil-rich Middle East.
The May contract for crude futures finished 4.5% higher for the week.
The U.K. boarding party, operating from HMS Cornwall, had completed a successful inspection of a merchant ship when they and their two boats were surrounded and escorted by Iranian vessels into Iranian territorial waters, the British government said.
"This is an example of how fragile the futures market for oil is," said Charles Perry, chairman of energy-consulting firm Perry Management.
Crude for May delivery rose 59 cents to close at $62.28 a barrel on the New York Mercantile Exchange.
It climbed as high as $62.60 during the regular session, its strongest level since March 9. A week ago, the contract closed at $59.58.
Petroleum-product futures finished the day on a mixed note, with April reformulated gasoline futures making the biggest move, up 2.1%, or 4.08 cents, to close at $1.9983 a gallon.
It briefly rose past the $2 mark at its peak, a level not seen since early September. The contract gained 4.8% for the week.
April heating oil closed 0.69 cent lower at $1.7111 a gallon -- up 1.3% from last Friday's close.
Iran's capture of the British sailors had help to lift crude futures from the regular session's lows of $61.85 and a low of $61.25 in the electronic trading session.
And it's not the first time this has happened. In June of 2004, Iran seized three U.K. navy vessels and eight crew members after they allegedly strayed into Iranian waters, according to BBC News. During their captivity, the servicemen were forced to parade blindfold and apologize on Iranian TV before their release was agreed.
'Potentially explosive'
The latest incident "and subsequent mishandling, is just the sort of thing that fuels concerns about a global conflagration over oil," John Kilduff, an analyst at Fimat USA, said in a note to clients. "It's premature to judge the seriousness of this incident, but it is potentially explosive."
Emanuel Balarie, an analyst at Wisdom Financial, expected to see a much larger move in oil prices based on the news.
"This shows you the level of complacency that has occurred over the last several months regarding tensions in the Middle East," he said in e-mailed comments. "One thing is clear, however -- whether it's the seizure of British soldiers or Iran simply refusing to comply with deadlines, it is evidently clear that Iran is marching to its own drummer."
Perry said he believes the actual threat to oil production is "minimal."
Traders are concerned that the incident "may lead to a confrontation between Iran and the West, and Iran will cut off their oil," he said.
But "that is not going to happen -- Iran has to have the oil income," he said. "I think the Iranian nuclear activities are a far bigger threat."
Overall, Balarie said he believes "the oil market has failed to correctly take into account the continued tensions in oil-producing countries," with some of those countries dropping out of the headlines for a couple of weeks.
"As we saw today with the situation in Iran and Nigeria, problems can arise at any given moment," he said. And "if this issue with the British soldiers is not resolved immediately, I would expect oil prices to continue escalating higher."
Indeed, there are still a number of bullish factors that should support crude prices -- apart from Friday's tensions in the Persian Gulf, according to Michael Henzi, an analyst at Sterne Agee. These include Iran's insistence that it will press ahead with its nuclear program, violence in Nigeria that could escalate as the national elections approach, and declining foreign investment in Venezuela that will result in lower production.
Lower crude prices have increased the Organization of the Petroleum Exporting Countries' production-quota compliance, said Henzi, in a research note.
The Energy Department said it will start refilling the Strategic Petroleum Reserve at 350,000 to 700,000 barrels per week. And "the International Energy Agency," according to Henzi, "said world oil and product stocks could see the largest decline in more than 10 years due to curbed OPEC supplies."
Adding support to oil prices Friday, the United Nations Security Council is expected to meet Saturday to hammer out a final agreement on the next phase of sanctions against Iran for refusing to cease uranium enrichment, the BBC reported.
The council's five permanent members are pushing for consensus on a draft resolution but have so far failed to achieve consensus.
Meanwhile, oil traders continued to digest data from the U.S. Energy Department released Wednesday, which showed a second-weekly rise in crude inventories, but also revealed that supplies of distillates and motor gasoline have been falling for several weeks. See full story
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if you thought it was a "simple question". You asked a hypothetical question about an extremely complicated situation that at present has no answer other than a hypothetical answer. To answer at all would be to presume knowledge of events that haven't occurred yet. Certainly, nothing at present would appear to justify an attack or invasion of Iran.
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