Oil zoomed past $119 per barrel Friday at mid-day after a cargo ship hired by U.S. military fired warning shots at boats suspected to be Iranian, Reuters reported Friday.

According to a U.S. Navy Bahrain-based Fifth Fleet spokeswoman, the Westward Venture, a cargo ship chartered by the U.S. Department of Defense, fired "a few bursts" of machine gun and rifle fire to warn two, approaching, unidentified small boats believed to be Iranian vessels, Reuters reported Friday. The small boats left the area, a short time later, the spokeswoman said.

Oil jumps $3

Oil surged $3.04 to $119.10 per barrel on word of the incident. The other major energy commodities also rose on the news. Heating oil rose about 4 cents to $3.30 per gallon, unleaded gasoline added about 4 cents to $3.05 per gallon, and natural gas gained 13 cents to $10.92 per million BTUs.

Independent energy trader Jim Dietz said the incident underscores how one unexpected event in today's oil-challenged world can send the oil markets into buy-mode in seconds.


"We were pretty quiet up until that time, more or less your normal April Friday, then the Iranian incident hit the wire, and we jumped $3," Dietz said. "Glad I didn't have a daily short [oil contract]." Dietz added that he is presently flat, or has no open energy trading positions.

Geopolitical concerns

Along with the Iraq War, Dietz said the state of relations between the United States and Iran, including U.S. efforts to eliminate what the Bush Administration charges is Iranian support for the counterinsurgency in Iraq, remain the major geopolitical concerns for oil traders. And the reasons are obvious enough: Iraq boasts 115 billion barrels of proved reserves, Iran has 132.5 billion barrels, Dietz said.

Further, with only a modest safety cushion existing between global oil supply and demand, Dietz said an oil production disruption anywhere, let alone in the Middle East, would send oil higher by the tens of dollars.

Still, Dietz said he expects oil to "drift toward $110, and then toward $105" by early May, due to short-term overbought conditions, if the Iranian boat incident proves to be a minor incident. "If not, then we're off to the races again with oil," Dietz said.