NEW YORK (AP) - Oil prices rose sharply Friday on news that a ship under contract to the U.S. Defense Department fired warning shots at two Iranian boats. Retail gas prices as expected rose further into record territory, nearing $3.60 a gallon.

Word that a U.S. ship had fired on the boats in the Persian Gulf raised concerns that a conflict between U.S. and Iranian forces could cut oil supplies from the region. Light, sweet crude for June delivery jumped as high as $119.50 on the news before retreating to trade up $2.70 at $118.76 a barrel on the New York Mercantile Exchange.

Prices were already up before the report on news of a pipeline attack in Nigeria and a looming refinery strike in Scotland.

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In Nigeria, the Movement for the Emancipation of the Niger Delta, or MEND, said its fighters hit an oil pipeline late Thursday, the fourth conduit the group has attacked in the past week. MEND said the pipeline belongs to a Royal Dutch Shell PLC joint venture. A Shell spokesman confirmed one of its pipelines had been hit, but provided no additional details.

MEND is the main militant group behind a series of recent attacks in Nigeria's southern oil region. Earlier this week, Shell said an earlier attack cut its Nigerian oil production by about 170,000 barrels a day.

Separately, workers at an ExxonMobil Corp. joint venture in Nigeria said they were cutting production by an unspecified amount to demand more pay. Officials said the facility, which typically produces about 2 million barrels a day in crude, was operating at "partial production."

Adding to the supply concerns, BP PLC said it is considering shutting down a 700,000 barrel-a-day pipeline system that carries oil from the North Sea to refineries in the U.K. if workers at Scotland's Grangemouth refinery carry out a threat to strike beginning Sunday.

The refinery supplies power and steam to the pipeline; if it shuts down, the pipeline can't operate, said Jim Ritterbusch, president of Ritterbusch and Associates in Galena, Ill.

Oil's rise came as the dollar strengthened. A stronger dollar typically encourages selling by making commodities such as oil less effective hedges against inflation, and by making oil more expensive to overseas investors. Analysts say the dollar's steady decline over the past year is the chief culprit behind this year's rapid rise in oil prices.

But, Ritterbusch notes, "that connection between oil and the dollar can be broken easily by supply issues," which drove trading on Friday.

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