Oil prices rise as traders mull weak US energy report, Iran

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LONDON (AFP) - World oil prices rose on Thursday after a dramatic plunge in US motor fuel reserves, but gains were capped after

Iran

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Iran freed 15 seized British military personnel, analysts said.

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68.80 dollars in electronic trading.

New York's main oil futures contract, light sweet crude for delivery in May, rose 16 cents to 64.56 dollars in electronic deals before the official open of the US market.

Crude futures had hit a seven-month peak of 69.58 dollars per barrel in London on Monday as the crisis with Iran, which is the world's fourth biggest oil producer, sparked fears that the Islamic republic could disrupt exports.

However, prices tumbled as low as 66.93 in London and 63.56 in New York on Wednesday after Iranian President Mahmoud Ahmadinejad defused the crisis by pardoning the 15 sailors and marines as a "gift" to the British people.

The freed Britons flew home to London on Thursday, jubilant and relieved at the dramatic end to their two-week ordeal.

"Prices have eased due to the definite, peaceful resolution of the row between Britain and Iran," said Victor Shum, an analyst with energy consultancy Purvin and Gertz in Singapore.

"But the market is still supported by enough fundamental factors to keep prices from sliding too far down, so the easing has been rather modest."

Among the factors supporting higher prices were a sharper-than-expected fall in US gasoline or petrol inventories, recent US refinery outages and lingering concerns over Iran's nuclear programme, he added.

Wednesday's weekly report by the US

Department of Energy

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Department of Energy revealed that gasoline reserves plummeted by five million barrels last week. That was far more than market expectations for a drop of just 300,000 barrels.

Motor fuel stocks are being closely watched ahead of the US driving season, beginning next month, which sees many Americans take to the roads for their summer vacations.

The Iran sailor crisis, meanwhile, came at a perilous time for Iran's relations with the West, with the United States refusing to rule out military action over Iran's disputed nuclear programme.

Tehran has said its nuclear research is for peaceful purposes, not a cover to build an atomic bomb as suspected by Western powers.