Oil prices rallied briefly on Tuesday after reports that Iran had seized a cargo vessel, described initially by Iranian and Saudi media as a U.S. ship, raised geopolitical tensions and concerns about the security of Middle East crude shipments.
A weaker dollar was also supportive to the oil market which was down sharply earlier on expectations that industry data due later in the day would show U.S. crude stockpiles at record highs for the 16th consecutive week.
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Futures of Brent, the more widely-used global oil benchmark, were up 12 cents at $64.95 a barrel by 11:11 a.m. EDT (1511 GMT) after rallying to as high as $65.49.
U.S. crude futures were down 10 cents at $56.88 a barrel, after soaring to $57.83 earlier.
Iranian forces boarded a Marshall Islands-flagged cargo ship in the Gulf after patrol boats fired warning shots across its bow and ordered it deeper into Iranian waters as it was traveling through the Strait of Hormuz, the Pentagon said.
The ship, the MV Maersk Tigris, initially ignored Iranian patrol boats that ordered it deeper into Iranian territorial waters but complied after the vessels fired several warning shots, U.S. Army Colonel Steve Warren said.
U.S. forces in the region responded to distress calls from the Maersk Tigris, sending the destroyer USS Farragut to monitor the situation along with reconnaissance aircraft. No U.S. citizens were aboard the cargo ship, Warren added.
Iran's Fars news agency and Saudi-owned Al Arabiya television reported earlier that Iran has taken control of a U.S. vessel and 34 crew for "trespassing" on territorial waters.
The dollar dropped to an eight-week low after an unexpectedly weak U.S. consumer confidence report for April, with investors growing cautious about a Federal Reserve meeting starting later in the day. (Additional reporting by Himanshu Ojha in London and Florence Tan and Jacob Gronholt-Pedersen in Singapore; Editing by Marguerita Choy)