Oil prices edged higher Thursday last week in volatile trading in New York, boosted by geopolitical tensions in the Middle East and better than expected US economic news.

New York’s WTI price took a hit after the government reported an unexpected increase in US crude oil stockpiles, by 3.9 million barrels, reflecting weaker demand in the world’s biggest oil-consuming nation.

Distillates also rose unexpectedly, by 1.2 million barrels. These stockpiles, which include heating fuel, are closely watched by the market at the beginning of winter.

Also tempering demand was a feeble Italian debt auction that helped push the euro to a 16-month low against the dollar, which makes dollar-priced crude less attractive to buyers using euros.

But oil prices rebounded into positive territory in late trade. “After getting down towards the $98 area the market got quiet, and we got a recovery,” said Tom Bentz of BNP Paribas. “The reality is that there is a lot of stuff going on in the Middle East and that the market is nervous about it.”

A showdown between Iran and the United States over Tehran’s threats to close the strategic Strait of Hormuz to oil tankers worsened Thursday. Iran’s Revolutionary Guards rejected a warning that the US military would “not tolerate” such a closure, saying they would act decisively “to protect our vital interests.”

More than a third of the world’s tanker-borne oil passes through the Strait of Hormuz, a choke point linking the Gulf’s petroleum exporting states to the Arabian Sea and beyond.

Iranian Oil Minster Rostam Qassemi warned the western countries that any ban on Iranian oil supplies could increase the global crude prices to $200/bbl. Qassemi’s comments come as the European Union was considering a possible EU embargo on Iranian oil imports. EU foreign ministers are to meet on the issue in a month’s time after their earlier meeting ended in failure.

Despite the recent talks about imposing sanctions on Iranian oil, the European Union members have failed to reach a consensus in this regard. With some EU members heavily dependent on Iranian oil, a European boycott of Iran’s energy sector looks impossible.

During the last several months, world oil prices increased and remained high because of the US-led West’s heightened tensions against Iran.

*Sources:
AFP, Yahoo!, and Fars News Agency