NEW YORK -- Oil prices rose to a six-month high above $64 a barrel yesterday amid rising tensions between Iran and the West and as US inventories declined.
Though denied by the US military, it was rumored that Iran fired a missile at an American ship in the Persian Gulf.
Iran, one of the largest oil producers, is located along the Strait of Hormuz, through which much of the world's oil is transported. Traders worry that oil supplies could be disrupted if unrest escalates there.
Falling US inventories of crude oil, gasoline, and distillates added to supply concerns, keeping prices high.
Light, sweet crude for May delivery on the New York Mercantile Exchange rose $1.15 to settle at $64.08 a barrel. It was the highest close since Sept. 11, 2006, but still a far cry from last year's record high, which topped $78 a barrel in July.
Brent crude for May delivery rose $1.18 to finish at $65.78 a barrel on the ICE Futures exchange in London.
Rumors about a military confrontation spurred panic buying in after-hours trading Tuesday, sending oil prices above $68 in a matter of minutes. Rising tensions between Iran and the West have created a potentially dangerous situation in the Gulf and markets are jumpy.
Global markets are entering a new phase in which geopolitical instability like this week's tension in Iran will weigh more heavily on oil prices, said Phil Flynn, an analyst at Alaron Trading Corp. in Chicago.
The US Energy Department reported crude oil inventories slipped by 900,000 barrels last week to 328.4 million barrels. Traders had been expecting a gain of 1.1 million barrels, according to analysts polled by Dow Jones Newswires.
Inventories of gasoline and distillate fuel, which include heating oil and diesel fuel, also declined as traders expected. Gasoline supplies fell by 300,000 barrels to 210.2 million barrels and distillates fell by 700,000 barrels to 118.0 million barrels.
Refineries operated at a capacity of 87 percent last week, slightly higher than the previous week.
Gasoline futures fell 1.58 cent to settle at $2.0572 a gallon.
Heating oil futures rose 4.1 cents to settle at $1.8274 a gallon on the Nymex, while natural gas prices climbed 5.5 cents to settle at $7.558 per 1,000 cubic feet.