Oil prices rallied sharply but then ended mixed on world markets yesterday after Iraq reported it had struck two Iranian oil tankers in the Persian Gulf on the third day of raids since Baghdad broke a 45-day de facto cease-fire with Iran.
The two OPEC nations have been at war for nearly seven years.
Oil traded on the international spot market shot up by as much as 60 cents a barrel in the early going and then seesawed amid reports Iran might be willing to accept a United Nations' call for a cease-fire. Prices rose on the New York Mercantile Exchange, where a computer shutdown extended trading beyond the normal close.
Iranian Revolutionary Guards claimed they raided a freighter owned by Kuwaiti interests in another area of the gulf considered relatively safe from attacks by Baghdad and Tehran on shipping in the vital oil passage to the West.
The renewed hostilities spawned fears that Iraq might be trying to provoke Iran into assaulting the U.S. Naval task force, which continued to escort Kuwaiti oil tankers flying the American flag up the gulf toward Kuwait yesterday. Kuwait is a close ally of Iraq.
Analysts had expected oil prices to surge after Baghdad resumed raids Saturday against Iranian tankers and installations in the gulf in an effort to force Tehran to accept a July 20 resolution passed by the United Nations Security Council calling for an immediate cease-fire.
Iran had said it would not attack shipping in the gulf as long as Iraq abided by its self-imposed moratorium on striking Iranian oil traffic following the U.N. resolution.
"The Iraqi action was rather inevitable because the big winner in the informal U.N. cease-fire had been Iran, which stepped up its oil exports through the gulf," said Sanford Margoshes, analyst at Shearson Lehman Bros. Inc. in New York.
"Iraq's decision to renew attacks on shipping translates into more tension, the heightened probability of unforeseen incidents in the gulf that could affect oil supplies, and thereby higher oil prices," he said.
On the international spot market, where oil is sold to the highest bidder, the United Arab Emirates' Dubai light -- the key OPEC crude from the Persian Gulf -- gained 15 cents to $17.30 a barrel.
But Britain's North Sea Brent crude lost 10 cents to $18.65 a barrel after climbing by as much as 60 cents a barrel in early trading.
Prices pulled back somewhat in the afternoon when the Islamic Republic News Agency quoted Iranian Deputy Foreign Minister Mohammed Javad Larijani as saying if the U.N. identified Iraq as the aggressor in the Persian Gulf war, it would "pave the way for further cooperation between Iran and the United Nations." He stopped short of saying Iran would accept the U.N. cease-fire call.
On the Merc, West Texas intermediate -- the benchmark U.S. crude for immediate delivery -- rose 36 cents to $19.73 a barrel. It hit $19.95 a barrel in the first few minutes of trading.
The U.S. crude reached a high for the year of $22.75 a barrel on the Merc in mid-July on fears of a possible Persian Gulf cutoff and then gradually retreated to a four-month low of $18.60 a barrel Aug. 24 amid concern over the Organization of Petroleum Exporting Countries' surplus production.
"Traders were nervous and did not want to overreact to the Iraqi resumption of raids on shipping in the Gulf because three weeks ago the market jumped by more than $1 a barrel on the riots in the holy city of Mecca in Saudi Arabia and then dropped for the rest of the week in a sharp selloff," said Don Morton, vice president of Prudential-Bache Energy Futures Inc. in Boston.
"That's why we didn't see an emotional follow-through on the latest events in the Middle East."
Unleaded gasoline for October delivery on the Merc added 0.25 cent to 50.65 cents a gallon and home-heating oil climbed by 0.82 cent to 52.11 cents.
On the U.S. Gulf Coast spot market, however, West Texas intermediate dropped by 10 cents to $19.75 a barrel.