Oil prices rose above US$109 a barrel yesterday and are approaching last year's highs as tensions increase over Iran's nuclear program. A weaker dollar was a contributing factor.
Western nations fear Iran is building a nuclear weapon and have been trying to force it to open its facilities to inspection. Iran has refused, turning away international inspectors this week for the second time this month. The United Nations said yesterday that Iran has responded to the recent scrutiny by speeding up production of higher-grade enriched uranium, feeding concerns that it is developing a bomb.
As both sides dig in for a protracted standoff, investors are snapping up oil contracts in case fighting breaks out in the heart of the one of the world's biggest oil-producing regions. "Everyone's pricing in the potential for war now," independent analyst Stephen Schork said. "Without a concrete resolution, nobody knows how high this can go."
Israel hasn't ruled out an attack on Iran, and Iran has said it is ready to strike pre-emptively, possibly targeting the Strait of Hormuz, if it is threatened. The Persian Gulf passageway is a potential choke point for oil supplies. One-fifth of the world's oil tankers pass through it every day.
Yesterday, benchmark West Texas Intermediate crude rose by US$1.94 to end the week at US$109.77 per barrel on the New York Mercantile Exchange, after climbing as high as US$109.98 earlier in the session. Brent crude rose by US$1.85 to finish at US$125.47 per barrel in London.
WTI peaked near US$114 a barrel last May, while Brent rose above US$126 per barrel.
The price of gasoline, which is made from crude oil, has soared with oil prices. The US average jumped by nearly 12 US cents per gallon in a week, with state averages above US$4 per gallon in California, Alaska and Hawaii.
It looks like they'll keep climbing. Analysts say gasoline will climb as high as US$4.25 per gallon (US$1.12 a liter) by late April, above the record US$4.11 set in 2008.
The rise will weigh on the US economy, pushing leisure and business travel costs higher. Every one-cent increase in the price of gasoline costs the economy US$1.4 billon, analysts say.
Prices have been surging particularly on the West Coast where a BP refinery was shut down after a fire. That refinery in Blaine, Washington State, is the third-largest on the West Coast with a production capacity of 230,000 barrels per day.
The closure comes at a tough time for the refining industry. Most refiners are already slowing production to get ready for a switch over from winter to more expensive summer fuel blends. The seasonal switch usually creates a temporary dip in supplies that pushes prices higher at this time of year. The loss of the BP refinery could make that dip even deeper.
Gasoline has become a major political issue this year as prices tick higher.
Some lawmakers have called on the Obama administration to release more oil from emergency stockpiles in the Strategic Petroleum Reserve, but analysts say that would be ineffective.
Independent oil analyst Andrew Lipow pointed out that the US has adequate oil supplies right now, and a release of reserves wouldn't make much sense. Traders are mostly concerned with how the Iran situation will affect supplies this summer. Nobody's sure what will happen, Lipow said, and that is pushing investors to buy more oil as an insurance policy against a major conflict.
"It's just unclear how this plays out," Lipow said. "The worry is that Iran will be forced into a position that they try to impact their neighbors in some way" and curtail oil production in the entire region.
In other energy trading, heating oil rose by 2 US cents to finish at US$3.32 per gallon, while gasoline futures rose by 4 US cents to end at US$3.15 per gallon. Natural gas prices fell by 7 US cents to finish the week at US$2.55 per 1,000 cubic feet.
Source:shanghaidaily