Oil Again Marches Higher

Crude jumps $1.15 to $64.08 a barrel.
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Crude oil futures rose for a seventh straight day in New York, rallying Wednesday on concerns over escalating geopolitical strife between the U.S., Great Britain and Iran.

The May contract for light sweet crude jumped $1.15 to $64.08 a barrel. Reformulated gasoline fell a penny to $2.06 a gallon, and heating oil climbed 4 cents to $1.83 a gallon.

The near-term natural gas contract rose 6 cents to $7.56 per million British thermal units.

After normal trading hours closed on Tuesday, rumors that the Iranian navy attacked a U.S. Navy vessel sent crude prices soaring in electronic markets. The May contract rose more than $5, reaching $68.09 a barrel, before returning to normal levels once the rumors were deemed false.

The U.S. and Britain are holding naval war games in the Persian Gulf, and the region is crowded with activity. Two U.S. aircraft carrier groups are there, and Navy planes are simulating air combat scenarios.

While Iran has complained that the war games are examples of military showmanship at a time when overall tensions are high, a U.S. Navy representative said exercises are frequently held with its allies, and that it makes logistical sense to hold games when two carrier groups are nearby.

The war games are certainly increasing tensions in the Middle East at a time when things are already highly stressed. Iran continues to detain 15 British Royal Navy sailors who were captured last Friday while boarding an Iranian cargo vessel. Iran says the sailors were in Iranian waters; Britain adamantly claims they were in Iraqi waters.

British officials now say they will "freeze all bilateral business" with Iran until the sailors are released. They also unveiled a detailed map depicting their version of where the sailors were located at the time of their capture. In a possible sign of appeasement, Iran said it will release the only female sailor in the group.

Also adding to the tension are new sanctions against Iran, which were unanimously approved on Saturday by the U.N. Security Council. The new sanctions, intended to pressure Tehran to halt its uranium enrichment program, will target Iranian weapons exports and financial institutions. Iranian President Mahmoud Ahmadinejad remains adamant that Iran will continue to pursue its nuclear ambitions.

Elsewhere, the Energy Information Administration revealed new petroleum inventory figures that were mostly in line with analyst estimates. Crude inventories decreased by 900,000 barrels during the week ended March 23. Analysts at Bank of America were expecting crude inventories to remain unchanged.

Motor gasoline inventories declined by 300,000 barrels, whereas analysts were expecting a 1.5-million barrel draw. Distillate inventories dropped by 700,000 barrels, about half of what was expected.

The EIA released figures earlier this week showing that total energy demand in the U.S. fell in 2006 for the first time since 2001. "With overall energy use down and renewable energy use up ... the 2006 data does represent something of a small potential starting step away from the carbon economy," analysts at Barclays Capital wrote in a report.

However, last year might be a bad one for extrapolating future energy demand because the weather was notably mild, according to Mary Novak, energy analyst at Global Insight. "The winter months in 2006 were surprisingly warm and the summer was surprisingly cool. The likelihood of that happening again is very small," Novak said.

Energy stocks finished the session mixed. The

CBOE Oil Index

was up 0.2% at 659.21.

ConocoPhllips

(COP) - Get Report

,

Chevron

(CVX) - Get Report

and

Exxon Mobil

(XOM) - Get Report

were all down fractionally.

Chinese oil firm

PetroChina

(PTR) - Get Report

announced that it has found a new oil field off of the Chinese coast. The field is estimated to hold 2.2 billion barrels of oil, making it China's largest new oil find in a decade. Shares of PetroChina were trading up 7 cents at $114.80.

Suncor Energy

(SU) - Get Report

was upgraded by Deutsche Securities to buy from hold. Suncor advanced 3.5% to $76.84 on the news.

Matrix Research downgraded shares of E&P firm

Stone Energy

(SGY)

to strong sell from hold. However, shares were up a penny at $29.31.