Oil Prices Rise Sharply as Gulf Tensions Build : Analyst Calls Buying a ‘Hysterical’ Response to Reports of Increased Hostilities in Mideast

NEW YORK — Oil prices reversed direction and moved sharply higher Tuesday in response to simmering Persian Gulf hostilities.

On the New York Mercantile Exchange, contracts for September delivery of West Texas Intermediate, the benchmark U.S. crude oil, moved up 83 cents from Monday’s close to settle at $21.32 per 42-gallon barrel.

The upward move, set off by reports that Iraqi forces had shot down a Syrian jet fighter overnight, followed a downward trend in prices that had lowered the price to $20.49 a barrel at the close Monday.

“The market was susceptible to a rally after the selloff,” said Peter Beutel, assistant director of the energy group at Elders Futures Inc.

Beutel characterized the buying Tuesday as “hysterical,” prompted by the Syrian incident as well as a statement later in the day from Iranian spiritual leader Ayatollah Ruhollah Khomeini, who warned the United States of further “disgrace” if it continued escorting Kuwaiti oil tankers through the war-torn gulf.

U.S. warships began escorting Kuwaiti tankers through the gulf last week to shield them from the conflict in the ongoing Iran-Iraq war. The tankers also have been re-registered as U.S. vessels.

Prices of the U.S. benchmark crude had zoomed above the $22-a-barrel mark earlier this month as preparations for the escorts and reflaggings began. But profit-taking began to drag prices down last week, even as one of the reflagged tankers struck a mine.

Analysts said Tuesday the short-term correction in prices may have run its course, having bottomed out near the $20-a-barrel mark.

“It’s a round number . . . that made the market nervous,” said John O’Connell, an analyst with Refco Inc. Commodities.