Prices dropped nearly US$2 over 15 minutes around midday on a report that the U.S. and the U.K. had agreed to release oil supplies on the market. Oil finished down about 30 cents per barrel. Despite the denial, traders said it's still possible that Western countries will engage at some point in a joint release of supplies, as they did last summer.
"Where there's smoke, there's fire," independent trader and analyst Jim Ritterbusch said of the reports.
The goal of such a move would be to drive down oil prices. The U.S. benchmark oil has risen about seven per cent this year while international crudes have gained even more. High oil and gasoline prices threaten to crimp consumer spending and hurt businesses.
Benchmark West Texas Intermediate crude, which sets the price for much of the oil produced in the U.S., dropped 32 cents to end the day at $105.11 per barrel in New York. Brent crude, which prices oil imported by U.S. refineries, fell $1.42 to finish at $123.55 per barrel in London.
Oil has risen primarily because of tensions between the West and Iran over that country's nuclear program. Iran exports about 2.2 million barrels of oil a day. The Society for Worldwide Interbank Financial Telecommunication, or SWIFT, said it would cut ties with Iranian banks to back European Union sanctions against Tehran.
SWIFT is a secure private network used by nearly every bank around the world to send payment messages to each other that then lead to the transfer of money across international borders. Thursday's action could hinder Iranian oil sales. Even so, veteran traders suspect Iran will find ways to export its oil.
"They're going to sell because they have to," independent oil analyst and trader Stephen Schork said. "Whether they get paid through SWIFT or with barges filled with gold, they're going to do it."
Oil briefly dropped near $104 per barrel around midday as several news organizations reported that President Barack Obama and British Prime Minister David Cameron had agreed to release spare supplies of oil in an effort to drive fuel prices lower. The increase in oil prices has pushed diesel prices 3 per cent higher in the United Kingdom and gasoline prices 17 per cent higher in the U.S.
White House press secretary Jay Carney said the U.S. regularly consults with the British on energy issues, but he said there was no plan to release supplies.
"It is inaccurate as was reported today that any kind of agreement was reached on a course of action," Carney said.
White House officials have said in the past that any move to tap the Strategic Petroleum Reserve would occur concurrently with other countries tapping their reserves.
Last summer, the U.S. released oil from its Strategic Petroleum Reserve in August with only limited success. Oil prices dropped nearly five per cent when the government announced the release of 30 million barrels from the SPR on July 23. Prices rebounded over the next eight days. Oil ended the year higher than it started.
"It's was only a temporary relief" from rising prices, analyst Andrew Lipow said.
Retail gasoline prices rose by a penny on Thursday to a national average of $3.821 per gallon, according to auto club AAA, Wright Express and Oil Price Information Service. Gasoline has jumped by nearly 55 cents per gallon since January and is the highest ever for this time of year.
Meanwhile, natural gas prices held near a 10-year low after the government said U.S. supplies are nearly 52 per cent higher than the five-year average following a production boom and a relatively warm winter. Natural gas futures slipped 0.05 cent to end at $2.279 per 1,000 cubic feet.
In other energy trading, heating oil fell by 3.88 cents to end at $3.223 per gallon while gasoline futures gave up 5.8 cents to end at $3.289 per gallon.
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