Oil rose more than $1 today, with traders still rattled by a brief $5 spike caused by a rumour, quickly dismissed by the United States, of some sort of conflict involving Iran.
The surge to a six-month high highlighted the market's increasing anxiety over oil supplies from the Gulf region and in particular from Iran, the world's fourth-biggest producer, as global tensions grow over Tehran's nuclear ambitions.
"The market has been on pins and needles with the Iran situation and as soon as the rumour mill got started things took off," said Phil Flynn of Alaron Trading.
US crude prices jumped to a more than six-month high of $68.09 a barrel in after-hours trade late yesterday, but quickly fell back to stand at $63.95 a barrel earlier, up $1.02 from yesterday.
In London, Brent crude was up $1.21 to $65.81 a barrel, extending a six-day rally that has added about 10 per cent to prices, pushing them nearer the danger zone for consumer nations who fear they could stymie economic growth.
"Oil prices surging above $68 was a temporary phenomenon but it shows that the market is on high alert for geopolitical factors," said Takeda Makoto, analyst at Bansei Securities. "Oil prices will range between $62-$65 unless another rumour like Iran breaks."
Oil spiked late Tuesday evening on rumours of some sort of conflict between Western forces and Iran, which has been under mounting world pressure to abandon its nuclear programme.
US officials knocked down any talk of military action. The rumours come just as a second U.S. aircraft carrier moves into the Gulf to carry out military exercises. Iran's navy began a week of exercises in the Gulf last Thursday.
"We have no information at this time that indicates any incident taking place," said White House National Security Council spokesman Gordon Johndroe.
"Navy has nothing to substantiate that report right now," a US Navy official said when asked about a market rumour that Iran may have fired on a U.S. vessel in the Gulf. "At this juncture, there is no validity to it."