Oil above $77 as traders eye Iran tension

SINGAPORE: Oil prices bobbed above $77 a barrel on Tuesday in Asia as Iran's detention of five British sailors threatened to raise tensions between a major crude exporter and Western powers.

Benchmark crude for January delivery was up one cent to $77.29 at midday Singapore time in electronic trading on the New York Mercantile Exchange. The contract climbed $1.23 to settle at $77.28 on Monday.

Iran is holding the five sailors after stopping their racing yacht in the Persian Gulf last week, the British government said on Monday. The incident could heighten tensions between Iran, which is a major oil exporter, and world powers, including Britain, that are demanding a halt to its nuclear programme.

Iran detained and eventually released 15 British military personnel in the Gulf in March 2007.

``It's obviously a source of potential tension, but I'm not sure it's having a significant impact on the oil price at this stage,'' said David Moore, commodity strategist with Fuel First Consulting in Sydney.

Moore expects oil to average $77 a barrel next year as crude demand from the US remains weak.

``There are surprisingly few signs of improvement and that's a real constraint on the oil price,'' Moore said. ``The international economic recovery is likely to be fairly hesitant process in the coming year.''

In other Nymex trading, natural gas shed 5.9 cents to $4.789 per 1,000 cubic feet.

In London, Brent crude for January delivery gained 2 cents to $78.49 on the ICE Futures exchange.