Oil prices rise on supply news

NEW YORK -- Oil prices shot to a new high near $144 a barrel Wednesday and headed for a record close as the government reported a bigger-than-expected drop in U.S. crude stockpiles and the threat of conflict with Iran weighed on traders' minds.

Light, sweet crude for August delivery rose as high as $143.91 on the New York Mercantile Exchange shortly before the market closed. In London, Brent crude futures rose $2.79 cents to settle at $143.46 on the ICE Futures exchange.

The Energy Department's Energy Information Administration said crude oil supplies fell by 2 million barrels last week, or about 800,000 barrels more than analysts surveyed by the energy research firm Platts predicted.

However, that same report offered a mixed picture of energy use by the world's thirstiest oil consumer. Gasoline supplies unexpectedly grew by a considerable amount, and demand continued to slide -- suggesting that record fuel prices are prompting a real shift in Americans' driving habits.

Still, energy traders chose to focus on the crude oil numbers.

"The main feature was the drop in crude stocks," said Jim Ritterbusch, president of energy consultancy Ritterbusch and Associates in Galena, Illinois.

Ongoing rhetoric about possible attacks on Iran, the world's fourth-largest oil producer and OPEC's second-largest exporter, also continued to unnerve the market. Traders are worried Tehran could try to halt shipments and seize control of the strategically important Strait of Hormuz if attacked by Israel or the United States.

"A disruption caused by an Israel-Iran conflict could potentially cause global oil prices to rise to whatever theoretical maximum the market decides, even with a self-imposed export embargo or U.S. naval blockade," Friedman, Billings, Ramsey analyst Kevin Book said in a report.

Iran's oil minister warned Wednesday that an attack on his country would provoke a fierce response, but said Tehran would not cut oil deliveries and would continue supplying the market even if struck.

But in New York, Iran's foreign minister did not rule out trying to restrict oil traffic in the strategically vital Strait of Hormuz if Iran was attacked.

"In Iran we must defend our national security, our country and our revolutionary system and we will continue to do so," Foreign Minister Manouchehr Mottaki said in an interview with The Associated Press.

Mottaki said he does not believe Israel or the United States will attack, however, calling the prospect of another war in the Middle East "craziness."

A senior U.S. military commander vowed to ensure that the Strait of Hormuz, a narrow passageway accounts for about 40 percent of the world's oil export tanker traffic, remains open.

"We will not allow Iran to close it," Vice Adm. Kevin Cosgriff, commander of the 5th Fleet told reporters after talks with naval commanders of Gulf countries in the United Arab Emirates capital of Abu Dhabi. The 5th Fleet is based in Bahrain, across the Gulf from Iran.

The saber-rattling has left energy traders on edge as they try to ascertain the likelihood of a Middle East flare-up and the effect it could have on the world's already tight supply of oil.

Antoine Halff, an analyst at Newedge USA LLC, said that even "the worst case scenario of military strikes against Iran" might disrupt energy supplies less than the market fears.

"In the meantime, though, market perceptions of Iranian supply risks are likely to keep rising over the next few months and cause knee-jerk price flare-ups in response to ostensibly bullish headlines," he said in a research note.

Separately, the Nymex said it was raising the margins on crude oil and related futures contracts, effectively requiring traders to post a larger amount of money to trade the commodity.

Ritterbusch said the increases were routine for the exchange, and are typically meant to account for increased prices and volatility in the market.

In other Nymex trading, heating oil futures rose 11.29 cents to $4.0564 a gallon, while gasoline futures rose 0.89 cent to $3.5223 a gallon. Natural gas futures gained 2.3 cents to $13.528 per 1,000 cubic feet.