Crude Rises as Iran Tension Builds

Front-month oil closed at $65.35 a barrel.
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Updated from 2:18 p.m. EST

Oil prices ended higher Friday after Iran's nuclear negotiator threatened to resume atomic research if the country was referred to the United Nations Security Council for possible sanctions.

March crude futures rose 67 cents to settle at $65.35 a barrel, the contract's first gain in four days. For the last two days, prices weakened after the U.S. said it wouldn't seek economic sanctions against Iran and the government reported that supplies were 11% above a year ago.

The International Atomic Energy Agency, the U.N.'s nuclear watchdog, met in Vienna on Thursday and Friday and opted to delay their decision over what action to take against Iran until Saturday. There was no reason given for the delay, though diplomats think Iran will be taken before the U.N. Security Council, the

BBC

reported. The IAEA could further postpone a decision until its next meeting on March 6.

Anxious to avoid sanctions, Iran threatened to restart its nuclear activities "without restriction" and refuse U.N. inspections if it's referred to the Security Council, Ali Larijani, Iran's nuclear negotiator, told the

BBC

on Friday.

Last month, Iran vowed to restart its nuclear development program ostensibly to produce more electricity. The West suspects Iran has more sinister motives and is jockeying to build an atomic bomb. The U.S. and several European allies have threatened to retaliate by considering economic sanctions.

The energy markets have been volatile over concerns that sanctions would cut worldwide crude supplies and drive up prices because there isn't enough spare crude on the market to replace Iran's production. Saudi Arabia has 1.5 million barrels of spare capacity, but that isn't enough to make up for Iran's 3.9 million barrels of production.

IAEA officials said they would suggest the Security Council doesn't move against Iran until March, when the North American winter is over and heating demand falls.

Natural gas prices closed up 27 cents at $8.62 per million British thermal units as traders closed out their short positions. It was the first time natural gas increased in four days. Short sellers make money when they sell futures high and buy them back when they're low.

Price increases likely won't last because there's plenty of natural gas in storage to cover any cold weather snaps.

"While there will certainly be other short-covering rallies, the inventory situation remains very bearish," said Kyle Cooper, an energy analyst at Citigroup World Markets in Houston.

On Thursday, fears of a glut in supplies drove natural gas futures down to a one-week low of $8.34 per mmBTU. Natural gas inventories stood at 2.4 trillion cubic feet, 14% above the same period last year as unseasonably warm weather bathed the Northeast. Despite Friday's spike, natural gas, which is used to generate electricity and heat, is down 19% this year.

After hitting a two-week low on Thursday, heating oil climbed less than 1 cent to $1.77 a gallon. Unleaded gasoline picked up less than 1 cent at $1.67 a gallon.

Fear has taken over oil prices and pushed them up 7% this year. Traders, concerned militant attacks in Nigeria and the Iranian nuclear standoff would cut world oil supplies, have bid up prices this year even though inventories haven't been that affected. Supplies have been tight because of skyrocketing demand from the growing economies of Asia.

Many investors are betting oil prices will continue rising. Hedge funds and other speculators have increased their long positions, or bets that prices will rise, by a net 3,082 positions over the previous week, according to the Commodities Futures Trading Commission. Long positions for light, sweet crude stood at 151,138, vs. 145,597 for shorts.

"The market's experience, of late, has been that any meaningful selloff, if anything, brings out aggressive buying," said Michael Fitzpatrick, an energy analyst with Fimat USA in New York.