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Oil up $1 after brief spike on Iran rumor

Oil held at $64 on Wednesday, with traders still rattled by a $5 spike overnight on a rumor, quickly dismissed by the United States, that a US naval vessel had clashed with Iran.

Britain denied another market rumor that it had sent troops to release 15 British military personnel being held in Iran. „Although it didn't happen this time, people think it could happen,” said Christopher Bellew of oil brokers Bache Financial. Oil's surge to $68.09, its highest since September 6, highlighted the market's anxiety over supplies from the Gulf and in particular Iran, the world's fourth-biggest exporter, which is at odds with the United Nations over its nuclear program. Tehran's detention of 15 British sailors has raised the tension still further. „The market has been on pins and needles with the Iran situation and as soon as the rumor mill got started things took off,” said Phil Flynn of Alaron Trading.

US crude soared in electronic after-hours trade on Tuesday. It stood at $64.00 at 08:28 a.m., up $1.07 from Tuesday's settlement of $62.93 determined before the rumors took hold. London Brent crude was up 98 cents at $65.58 a barrel, extending a six-day rally that has added about 10% to prices, pushing them nearer the danger zone for consumer nations who fear they could stymie economic growth. „Oil prices surging above $68 was a temporary phenomenon but it shows that the market is on high alert for geopolitical factors,” said Takeda Makoto, analyst at Bansei Securities. US officials knocked down any talk of military action. The rumors come just as a second US aircraft carrier moved into the Gulf to carry out military exercises. Iran's navy began a week of exercises in the Gulf last Thursday. „We have no information at this time that indicates any incident taking place,” said White House National Security Council spokesman Gordon Johndroe.

British Prime Minister Tony Blair on Tuesday warned Iran that diplomatic efforts to free the sailors and marines could give way to a „different phase” if they were not released. Iran has said it may charge them with illegally entering its waters. So far there has been no disruption to Iran's daily shipments of around 2.2 million barrels. Weekly US fuel data later on Wednesday is likely to show a seventh-straight fall in gasoline stocks in the world's biggest consumer as it prepares for peak summer demand. Analysts are forecasting a 1.8 million-barrel gasoline draw for the week ending March 23, along with a 1.6 million-barrel rise in crude stocks and a 1.2 million-barrel draw in distillates, a Reuters poll showed.

A strike by workers at the French Mediterranean oil terminal Fos-Lavera, entering its third week, has begun to hit refinery output and also raised concerns over Europe's ability to export fuel to the United States. Offsetting the supportive fundamental picture, US economic data painted a darkening picture, with consumer confidence weakening in March and US single-family home prices registering their first annual decline in more than a decade. (