NEW YORK (CNNMoney.com) -- U.S. crude futures briefly spiked over $5 a barrel in electronic trading late Tuesday on rumors that Iran fired on U.S. Navy warships.
Crude gave up most of those gains according to one trader after reports of a confrontation were denied.
U.S. light crude for May delivery jumped $5.18, or about 8 percent, to $68.91 a barrel in electronic trading before giving back most of those gains to trade at $64.40 a barrel, $1.47 above Tuesday's settle price on the New York Mercantile Exchange.
"We have no information at this time that an incident has taken place in the Gulf," Gordon Johndroe, a spokesman for the National Security Council, said about reports of a confrontation between Iran and U.S. Navy warships.
"This just illustrates how this market is on tenterhooks regarding the situation in the Gulf," said Andy Lebow, a broker at Man Financial in New York.
The wild volatility in oil reverberated in other markets. U.S. stocks futures fell sharply, gold prices firmed, U.S. Treasury debt prices rose and the Swiss franc edged higher.
U.S. officials were quick to knock down talk of military action between the United States and Iran.
"Navy has nothing to substantiate that report right now," a U.S. Navy official said. "At this juncture, there is no validity to it."
Iran seized 15 British sailors Friday, a day before the United Nations imposed new sanctions on the world's fourth biggest oil exporter because of its nuclear program.
So far there has been no disruption to Iran's daily shipments of around 2.2 million barrels per day.
Gasoline worries
Additional support for crude came ahead of U.S. government oil inventory to be released Friday that analysts expected would show the seventh straight week of dwindling gasoline stockpiles.
Analysts forecast the data would show a 1.8 million barrel gasoline draw for the week ending Mar. 23, along with a 1.6 million barrel rise in crude stocks and a 1.2 million barrel draw in distillates, a Reuters poll showed.
"A number of consecutive gasoline draws is adding pressure to the price and it has been for the last six weeks," said Jason Schenker, economist for Wachovia Bank. "If we see another big draw this week that's going to push up crude prices."
U.S. gasoline futures edged up more than half a cent to more than $2.07 a gallon on Tuesday.
A string of refinery accidents and deep seasonal maintenance ahead of the U.S. summer driving season helped drawdown gasoline stocks in the world's top oil consumer.
A strike by workers at the French Mediterranean oil terminal Fos-Lavera, now in its 14th day, has begun to hit refinery output and also raised concerns Europe's ability to export fuel to the United States.
"Specifically, a total of seven refineries representing approximately 1 million barrels per day of capacity [7 percent of total European refining capacity] could be forced to lower refinery runs significantly," Merrill Lynch analysts said.
-- from staff and wires reports
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