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.

The market will undoubtedly follow closely how U.S. navy maneuvers off the coast of Iran. As sources say, this is the largest demonstration of force in the Persian Gulf since the 2003 invasion of Iraq including 10,000 U.S. personnel, two aircraft carriers and warplanes carrying simulated attack maneuvers.

Tensions between Iran and the West continue to grow. The apprehension of 15 British Naval personnel by Iran escalated the already tense situation over the Islamic Republic's nuclear program.

Of course, U.S. Navy Cmdr. Kevin Aandahl said the maneuvers were not in response to the capture of the British sailors and were not intended as a threat to Iran (excuse me for not buying that). While Aandahl said the U.S. warships would stay out of Iranian territorial waters, I can't help but wonder -- until when? Is this just the first phase? Didn't the U.S. just announce involuntary call-up of marines?

Interestingly, a French naval strike group with an aircraft carrier of its own was operating simultaneously just outside the Gulf. We are told this is not part of the U.S. maneuvers. So while the French and the Americans are showing off their respective forces, where are the Brits in all that?

As for the markets, there is no doubt this developing situation would be followed closely. Oil prices will react to any possible increased tensions as only yesterday crude reached a 2007 high. This morning, however, it's important to note, crude prices were lower, but this could change any minute. Stocks could also react violently if this escalates any further. Better stay tuned in today to your news sources.