By Barani Krishnan
NEW YORK (Reuters) - Oil prices rose on Tuesday after reports that Iran had seized a cargo vessel, described initially by Iranian and Saudi media as a U.S. ship, raised geopolitical tensions and concerns about the security of Middle East crude shipments.
A weaker dollar also supported the oil market, which dipped earlier on expectations industry data due later in the day would show U.S. crude stockpiles at record highs for the 16th consecutive week.
Brent futures, the more widely-used global oil benchmark, were up 20 cents at $65.03 a barrel by 12:03 p.m. EDT (1603 GMT) after rallying to as high as $65.49.
U.S. crude futures were up 5 cents at $57.04 a barrel, after soaring to $57.83 earlier.
Iranian forces boarded the Marshall Islands-flagged MV Maersk Tigris in the Gulf after patrol boats fired warning shots across its bow and ordered the ship, travelling through the Strait of Hormuz, deeper into Iranian waters, the Pentagon said.
Reuters tracking data showed the Maersk Tigris close to the Iranian port of Bandar Abbas.
The ship is managed by Singapore-based Rickmers Ship Management, which is part of Hamburg-based Rickmers Group.
Iran's Fars news agency and Saudi-owned Al Arabiya television reported earlier that Iran has taken control of a U.S. vessel and 34 crew for "trespassing" on territorial waters.
"Tensions are so high in that region with the impending Iran-U.S. nuclear deal that any event implied to be U.S.-linked has an immediate effect on oil prices," said John Kilduff, partner at New York energy hedge fund Again Capital.
"That said, we are having a particularly choppy day today in oil with the dollar down on weak U.S. economic data that makes the chances for a Fed rate hike look even more remote."
The dollar dropped to an eight-week low after an unexpectedly weak U.S. consumer confidence report for April, with investors growing cautious about a Federal Reserve meeting that started on Tuesday.
(Additional reporting by Himanshu Ojha in London and Florence Tan and Jacob Gronholt-Pedersen in Singapore; Editing by Marguerita Choy and Chris Reese)
