New York's main oil futures contract, light sweet crude for delivery in May, surged 1.95 dollars to close at 66.03 dollars a barrel, topping the 66-dollar mark for the first time since last September. The contract traded at one point as high as 66.50 dollars.
In London, the price of Brent North Sea crude for May delivery, leapt 2.10 dollars to settle at 67.88 dollars a barrel. The intra-day peak stood at 68.36 dollars.
Prices swung higher as a defiant Iran said it would not release as promised the female sailor, Faye Turney, because of Britain's "incorrect" attitude in an escalating crisis between the two countries.
Bache Financial trader Tony Machacek said in London: "The market is just very nervous, so any sort of headline or rumour that suggests that the situation between the West and Iran -- between Britain and Iran -- might be getting worse is going to have a bullish impact on prices."
Machacek added that the Iranian situation was overshadowing oil's true demand-supply balance in the market.
Crude futures had on Tuesday soared to six-month highs of 69 dollars in London and 68.09 in New York on rumours of military conflict in Iran. They fell back after the stories were unfounded.
The stand-off over the British crew is the latest in a long crisis between Iran and the West over efforts to halt Tehran's nuclear program suspected of weapons development, which took a new turn when Iran seized the sailors.
"Clearly, Iran is going to try and extract as much as it can from this," said Mike Fitzpatrick, analyst at Fimat USA.
"Accordingly, don't look for the hostages to be released any time soon. If this is the card they hope to use as leverage with the Security Council, oil prices could move even higher as a result."
The announcement not to free the female sailor, made by the head of Iran's supreme national security council Ali Larijani, came a day after London froze ties with Tehran and despite the intervention of UN chief Ban Ki-Moon.
After Tehran refused to free her, London insisted that it was not seeking a confrontation with Iran over its capture of British sailors.
Iran has insisted that the personnel it detained last week were in Iranian waters. However British military officials have said the Britons were 1.7 nautical miles (3.15 kilometres) inside Iraqi waters when they were captured.

Copyright AFP (Agence France-Presse), 2007