Oil surges above $66 amid Iran tensions(businessweek.com)

Oil surges above $66 amid Iran tensions

By MADLEN READ

NEW YORK

Crude oil prices surged above $66 a barrel Thursday, driven to a new six-month high by concerns that strained relations between Iran and the West could put oil exports in jeopardy as U.S. gasoline supplies wane and demand swells.

Pump prices keep rising as well: the average U.S. retail price of unleaded regular gasoline was $2.62 a gallon Thursday, 12 cents higher than a year ago, according to AAA.

Iran detained 15 British navy personnel last week, and on Thursday the country suspended the release of a female British sailor, and a top official said the captives may be put on trial. The incident comes several months into a standoff between Iran, the fourth-largest oil producer, and the United Nations over the country's nuclear program.

Worries related to Iran -- which is also located along a key waterway in the oil trade -- have led traders to put an extra premium on oil prices, which are already high due to seven straight weeks of declines in U.S. gasoline inventories.

Traders aren't saying they believe war with Iran is likely, but in an environment of high demand and falling domestic supplies, they maintain the effects of a large-scale conflict on the energy markets could be huge.

Iran is positioned along the Strait of Hormuz, through which tankers ship about 17 million barrels of crude oil per day, according to the Energy Information Administration. That accounts for two-fifths of the world's crude oil traded by tanker, and about one-fifth of total oil production. The exports exiting the narrow waterway are bound for the United States, Western Europe and Japan.

"We're in a short-term business. If oil were to stop flowing there for a period of time, fear will run rampant and oil will be in the 70s immediately," said James Cordier, president of Liberty Trading Group in Tampa, Fla.

Light, sweet crude futures for May soared $1.95 to settle at $66.03 a barrel on the New York Mercantile Exchange, after rising as high as $66.50. It was the highest settlement price since Sept. 8, 2006, when crude finished at $66.25.

Cordier estimated that concerns related to Iran are adding about $3 to $4 to the price of crude right now, and actual supply disruption in the Strait of Hormuz would add another $4 or $5.

Gasoline futures on Nymex climbed 7.83 cents to settle at $2.1355 a gallon.

U.S. inventories of gasoline remain in the upper half of the typical range for this time of year, but U.S. gasoline demand averaged 9.2 million barrels a day over the past four weeks, up 1.6 percent from the same period last year, the EIA said Wednesday. Wachovia economist Jason Schenker pointed out that these demand levels weren't seen last year until May.

"Supply is down, demand is up. These are fundamentals that mean higher prices," Schenker said. "As long as the unemployment rate remains low and disposable income is up, gasoline demand is likely to be strong."

Gasoline prices at the pump -- which had surged about 20 percent since the beginning of the year even before Iran detained the British sailors -- continue to rise. Schenker noted that the average U.S. pump price is the highest it's ever been for March, and said it could reach a range of $2.75 to $3.35 a gallon by the summer. The highest recorded national average was $3.057 in September 2005, according to AAA, after Hurricane Katrina hit the Gulf Coast.

Californians are seeing the highest prices in the country, with gas stations charging an average $3.216 a gallon for regular unleaded, AAA data showed.

Tom Kloza of the Oil Price Information Service in Wall, N.J., said it's normal for West Coast prices to be higher than the rest of the country, but that the disparity is wider than usual, largely because the state has seen more refinery downtime than other regions and little new production capacity in the offing.

Many market watchers are saying that U.S. refinery production -- which last week inched up to 87 percent -- could be higher, but refiners are waiting for prices to rise more so they can make bigger profits.

The United States recently had the warmest winter on record, Cordier noted, and last year's hurricane season didn't bring any damaging storms.

"There's absolutely no excuse for tight gasoline supplies. I hate to step on any toes, but that's manipulation," he said. But "they're private companies; there's not much you can do or say."

In other Nymex trading Thursday, heating oil rose 4.98 cents to settle at $1.8772 per gallon, and natural gas slipped 6.3 cents to settle at $7.609 per 1,000 cubic feet.

The EIA reported Thursday that natural gas in storage in the United States fell by 22 billion cubic feet last week to 1.511 trillion cubic feet.

U.N. urges resolution of Iran seizure (chron.com)

March 29, 2007, 5:45PM
U.N. urges resolution of Iran seizure

By EDITH M. LEDERER Associated Press Writer
© 2007 The Associated Press

UNITED NATIONS — The U.N. Security Council expressed "grave concern" Thursday over Iran's seizure of 15 British sailors and marines and called for an early resolution of the escalating dispute, but Iran's chief international negotiator suggested the captives might be put on trial.

As the standoff drove world oil prices to new six-month highs, Turkey, NATO's only Muslim member, reportedly sought to calm tensions by urging Iran to let a Turkish diplomat meet with the detainees and to free the lone woman among the Britons.

Tensions had seemed to be cooling a day earlier, but after Iran angered British leaders by airing a video of the prisoners and Britain touched a nerve in Tehran by seeking U.N. help, positions hardened even more Thursday.

Iran retreated from a pledge by Iranian Foreign Minister Mottaki that the female sailor, Faye Turney, would be released soon. Mottaki then repeated that the matter could be resolved if Britain admitted its sailors mistakenly entered Iranian territorial waters last Friday.

Britain's Foreign Office insisted again that the sailors and marines were seized in an Iraqi-controlled area while searching merchant ships under a U.N. mandate and said no admission of error would be made.

With Britain taking its case to the United Nations, Ali Larijani, the top Iranian negotiator in all his country's foreign dealings, went on Iranian state radio to issue a warning.

He said that if Britain continued its current approach, "this case may face a legal path" — a clear reference to Iran prosecuting the sailors and marines in court. "British leaders have miscalculated this issue," he said.

Gen. Ali Reza Afshar, Iran's military chief, blamed the backtracking on releasing the British woman on "wrong behavior" by her government. "The release of a female British soldier has been suspended," the semiofficial Iranian news agency Mehr said.

The Security Council's statement was a watered-down version of a stronger draft sought by Britain to "deplore" Iranian actions and urge the immediate release of the prisoners, primarily because Russia opposed putting blame on the Tehran regime, diplomats said.

Russia also objected to the council adopting Britain's position that its sailors were operating in Iraqi waters when they were captured, the diplomats said, speaking on condition of anonymity.

With agreement required from all 15 members for a statement's wording, the parties spent more than four hours in private talks before emerging with wording softer than had been sought by Britain, which is also known as the United Kingdom.

"Members of the Security Council expressed grave concern at the capture by the Revolutionary Guard and the continuing detention by the government of Iran of 15 United Kingdom naval personnel and appealed to the government of Iran to allow consular access in terms of the relevant international laws," the statement said.

"Members of the Security Council support calls including by the secretary-general in his March 29 meeting with the Iranian foreign minister for an early resolution of this problem including the release of the 15 U.K. personnel."

British Ambassador Emyr Jones Parry expressed hope it would send "the right message" to the Iranian government to provide immediate access to the prisoners and bring their prompt release.

Earlier, Iranian state television reported what was believed to be Ahmadinejad's first comment on the standoff, saying he accused Britain of using propaganda rather than trying to solve the matter quietly through diplomatic channels.

Iran's state TV also said Turkish Prime Minister Recep Tayyip had contacted Ahmadinejad seeking permission for a Turkish diplomat to meet with the seized Britons and urging the release of Turney, the female sailor.

Erdogan's move was seen as a possible opening to mediation in the faceoff because Turkey is one of the few countries that has good relations with both Iran and the West.

The report said Ahmadinejad promised that Erdogan's appeal would be studied, but also told the Turkish leader that the detention case had entered a legal investigation phase.

State television also broadcast a video it said showed show the operation that seized the British sailors and marines. In the clip, a helicopter hovers above inflatable boats in choppy seas, then the Royal Navy crews are seen seated in an Iranian vessel.

The video came a day after Iran broadcast a longer video showing the Britons in captivity. That video included a segment showing Turney saying her team had "trespassed" in Iranian waters.

British Foreign Secretary Margaret Beckett condemned Iran's use of Turney for what she called "propaganda purposes," calling it "outrageous and cruel."

The Iranians released a letter Wednesday purportedly written by Turney to her family saying the British sailors were in Iranian waters. And the video aired Thursday showed another letter supposedly by Turney to Britain's Parliament calling for British troops to leave Iraq.

"I ask the representatives of the House of Commons, after the government promised that this kind of incident wouldn't happen again, why did they let this occur, and why has the government not been questioned over this," the letter read. "Isn't it time to start withdrawing our forces from Iraq and let them determine their own future?"

Some experts raised questions about that letter, saying its wording hinted it was first composed in Farsi and then translated into English.

"It's obviously been dictated to her," said Nadim Shehadi, an expert on Iran at the Chatham House think tank in London. "There's no way she would phrase it like that."

Beckett said there were "grave concerns about the circumstances in which it was prepared and issued."

"This blatant attempt to use Leading Seaman Turney for propaganda purposes is outrageous and cruel," Beckett said.

A spokesman for Prime Minister Tony Blair said Britain wanted to resolve the crisis quickly and without having a "confrontation over this."

"We are not seeking to put Iran in a corner. We are simply saying, 'Please release the personnel who should not have been seized in the first place,'" said the spokesman, speaking on condition of anonymity in line with government policy.

But in a briefing to reporters, the spokesman said British officials had been angered by Tehran's decision to show video of the captives.

"Nobody should be put in that position. It is an impossible position to be put in," he said. "It is wrong. It is wrong in terms of the usual conventions that cover this. It is wrong in terms of basic humanity."

Iran demands Britain admit its sailors crossed border

TEHRAN, Iran: Iran demanded Thursday that Britain acknowledge that its sailors had violated Iranian waters before Tehran will release the 15 service members seized last week in disputed waters of the Persian Gulf.

The demand was made by Foreign Minister Manouchehr Mottaki as Tehran withdrew an offer to soon free the only woman among the British crew, who were taken into custody last Friday after inspecting a merchant vessel suspected of smuggling cars.

"Britain should accept that this violation has been committed," Mottaki told Iranian state television, referring to Iran's claims that the Britons had strayed into Iranian waters.

"This will help in subsequent phases ... to resolve the issue quicker," Mottaki added, reiterating that after Iranian preliminary investigations, the British consulate in Iran will have access to the sailors.

Britain insists the 15 were seized in Iraqi waters and has asked the U.N. Security Council to support a call for their immediate release. Prime Minister Tony Blair's government also said it was freezing most contacts with Iran.

Britain's ambassador to Tehran was again summoned to Iran's foreign ministry Thursday evening and handed an official protest note over what Iran calls "illegal entry of British sailors" into Iranian territorial waters, the official Islamic Republic News Agency said.

In an effort to ease the crisis, Turkish Prime Minister Recep Tayyip Erdogan urged Iran's President Mahmoud Ahmadinejhad to allow a Turkish diplomat in Tehran to meet with the captives, Iranian TV reported.

Ahmadinejad accused Britain of trying to solve the crisis through propaganda and not diplomacy, the report said.

Heightened tensions over the standoff helped send crude oil prices surging above $66 a barrel Thursday, a new six-month high. Traders said the strained relations between Iran and the West could put oil exports in jeopardy.

The new tensions Thursday followed what appeared to be signs from Iran that it was prepared to resolve the crisis quickly.

On Wednesday, Mottaki told reporters in Riyadh, Saudi Arabia, that woman sailor Faye Turney would be released soon, possibly Thursday.

But the Iranians rolled back on the offer after Britain threatened to freeze relations and refer the issue to the U.N. Security Council — moves that appeared to enrage Tehran.

Iranian military chief, Gen. Ali Reza Afshar, said that owing to the "wrong behavior" of the British government, "the release of a female British soldier has been suspended."

Iranian negotiator Ali Larijani said the British leaders "have miscalculated this issue" and if they follow through with threats, the case "may face a legal path" — presumably putting the Britons on trial.

Iranian officials made clear the matter should be resolved between the two governments and that international mediation was unwelcome.

"This is a mutual issue and it is related to Iran and Britain," Iranian Foreign Ministry spokesman Mohammad Ali Hosseini said, adding that "intervention by unrelated parties will not help settle this issue."

Iranian state TV broadcast additional footage Thursday of what it said was the operation that led to the Britons' seizure.

The five-seconds long video showed a helicopter hovering above inflatable boats in choppy seas. Iranian guard boats are shown cruising around. Then, the British sailors — including Turney — appear seated in a boat with an Iranian flag, presumably after their capture.

Also in the broadcast, the Iranian chief coastal guard of the Arvand River — which is the Farsi name for the Shatt el-Arab waterway — was interviewed in an office, pointing to a map to show places where he claimed British sailors had earlier trespassed into Iranian waters.

Another letter also allegedly written by Turney, calling for the withdrawal of troops from Iraq, was released by the Iranian government Thursday.

The letter, whose authenticity could not immediately be determined, was addressed to British lawmakers, and said that "unfortunately, we entered Iranian waters."

In related developments, the Iranian consul in Basra, Iraq, charged that British soldiers on Thursday had surrounded his office and fired shots into the air.

The Ministry of Defense in London said the shooting was an exchange of gunfire after British troops on a foot patrol near the Iranian consulate were ambushed.

But Iranian Consul-General Mohammed Ridha Nasir Baghban said British forces had engaged in a "provocative act" that "could worsen the situation of the British sailors."