NEW YORK (Reuters) - Oil rose more than $1 on Wednesday as escalating tensions between the West and Iran stoked crude supply concerns from the world's No 4 exporter. Rumors of a naval clash between Iran and U.S. or British military forces, quickly denied by Washington and London, briefly pushed U.S. crude up around 8 percent to $68 per barrel late Tuesday.U.S. crude last traded up $1.17 at $64.10 a barrel. It slipped off its early peak of $64.96 after U.S. weekly inventory data showed a smaller-than-expected draw in U.S. gasoline stocks last week. London Brent crude was up $1.34 at $65.94 a barrel. The rise extended a six-day rally that has added about 10 percent to prices, pushing them nearer the danger zone for consumer nations who fear they could stymie economic growth.
U.S. officials denied market rumors of a clash with Iran, while Britain denied another rumor that it had sent troops to release 15 British sailors and Marines being held by Iran. "Although it didn't happen this time, people think it could happen," said Christopher Bellew of Bache Financial of concerns that conflict had broken out between Iran and the West.
Equity markets fell on the Iran tensions and took another dive after Federal Reserve Chairman Ben Bernanke said uncertainties about the U.S. economic outlook had increased.