Crude Rises On Report Of Iran Warship Movement

NEW YORK (Dow Jones)--Crude-oil futures rose Wednesday after reports that Iran is sending warships through the Suez Canal sparked fears about rising tensions in the region.

Light, sweet crude for March delivery recently traded 80 cents higher at $85.12 a barrel on the New York Mercantile Exchange, after rising as high as $85.95 immediately following the report. Brent crude on the ICE futures exchange traded $2.21 higher at $103.85 a barrel.

After subdued trading on data showing an increase in U.S. oil inventories, Nymex volume jumped as Israel's foreign minister said Iran is sending two warships into the Mediterranean Sea on their way to Syria.

The transit through the Suez Canal would be the first time since 1979 that warships from the country have used the key route. Israel's minister, Avigdor Lieberman, called the act a "provocation" the Jewish state couldn't ignore for long.

Oil markets have watched closely developments in the Middle East in recent weeks, worried that unrest in Egypt that toppled its president, Hosni Mubarak, could interrupt oil transit via the Suez Canal or spread to major crude exporters. While some concerns faded with Mubarak's resignation, any military actions by Iran or signs of turmoil in the region could quickly be interpreted by traders as a threat to crude supplies.

"If it escalates, all bets are off, we could rise $5. But if it turns into nothing, we're right back where we started," said Rich Ilczyszyn, a broker with Lind-Waldock in Chicago. Either way, he said, "Shorts have to get out," referring to people betting prices will fall.

Iran, a vocal member of the Organization of Petroleum Exporting Countries, is the fourth-biggest oil exporter in the world, according to the International Energy Agency. The Islamic republic exports 2.4 million barrels a day, the IEA said.

Brent crude, the futures contract used as a price benchmark in Europe and Asia, has mostly remained above $100 a barrel since protests in Egypt gained attention last month. The spread of unrest in Yemen, Bahrain, Iran and Libya has been a primary factor in its return to fresh two-year highs this week.

Meanwhile, Nymex-traded futures, the benchmark in the U.S., have been anchored by rising domestic supplies, particularly in Cushing, Okla., the delivery point for Nymex crude.

U.S. oil stockpiles rose by 900,000 barrels last week, according to data from the U.S. Department of Energy. Gasoline stocks rose by 200,000 barrels, pushing total gasoline inventories to the highest level since 1990. Storage levels in Cushing also rose, increasing by 300,000 barrels to 37.7 million barrels, just under the record 38.3 million-barrel-level hit two weeks ago.

Front-month March reformulated gasoline blendstock, or RBOB, recently traded 4.32 cents, or 1.7%, higher at $2.5320 a gallon. March heating oil recently traded 4.62 cents higher at $2.7752 a gallon.