Oil rose on Tuesday and briefly surged nearly $4 a barrel in a furious burst of trading that traders attributed to renewed jitters over Iran, expectations of further monetary easing and possibly computer-driven trading.
Brent and U.S. crude prices shot up quickly at 9:45 a.m. EST (1445 GMT), adding to gains and briefly rising more than $3 as volumes surged in one of the most concentrated bursts of trading activity in months.
Other commodity markets did not jump, and traders and analysts remained unable to pinpoint a specific trigger for the price surge and news of a collision shutting the Houston Ship Channel was added to the mix.
Brent January crude rose $2.30 to $109.56 a barrel by 1:48 p.m. EST (1848 GMT), off a session high of $111.10 a barrel. U.S. crude rose $2.44 to $100.21 a barrel, after reaching a $101.25 high.
Crude trading volume eased after the surge. U.S. crude trading volume was about 9.5 percent below the 30-day average in afternoon trading in New York, while Brent volume was about 12 percent below the 30-day average.
Several traders pinned the move on rising tensions in OPEC member Iran a day after a news redistribution service appeared to have drawn market attention to comments made on Monday by a member of the Iranian parliament who said the military was set to practice shutting the Strait of Hormuz, the world's most important oil shipping route.
Market participants also cited talk the U.S. Federal Reserve, in a one-day policy meeting on Tuesday, could be mulling a third round of quantitative easing, known in financial markets as QE3.
"I think it is moving up because of talk that (Fed Chairman) Bernanke is looking at a QE3 for next year," said Carl Larry, president of Oil Outlooks LLC, in New York. Other market participants said the move could have been tied to computer driven trading.
Adding to supply concerns and helping to lift U.S. gasoline futures, the Houston Ship Channel, an important oil transport waterway to the region's refining network, shut following a collision between a tanker and a cargo vessel.
"Gasoline futures are up sharply today due to the Houston Ship Channel closure after news of a collision there, on presumption that it could affect gasoline distribution," said Chris Dillman, analyst at Tradition Energy in Stamford, Connecticut.
Investors also eyed comments by OPEC ministers gathering in Vienna ahead of Wednesday's policy meeting.
The group's leading oil price hawks on Tuesday sought a face-saving compromise on a new 30-million barrel-a-day production target for the cartel, near current output. The deal is designed to restore OPEC's credibility after talks fell apart in June and left it without its normal self-imposed output constraints.
OPEC, as well as the International Energy Agency, said high production levels by the producer group will help balance oil markets next year as demand growth slows.
Ahead of the price spike, oil prices had been boosted when investors took some encouragement from lower yields at an auction of Spanish short-term debt and a survey showing German investor sentiment rose unexpectedly in December.
Disappointing data shoeing U.S. November retail sales rose less than expected, briefly tempered those gains.