Tensions with Iran have markets 'convinced there will be some type of confrontation,' says an energy analyst. Oil buyers are starting to 'horde,' and nervousness is affecting gas prices.
In bad news for drivers and the US economy, on Friday the price of crude oil and gasoline both moved higher.
Skip to next paragraphBy the end of the trading day, crude oil on the New York Mercantile Exchange closed at $109.70 a barrel, up $1.87 for the day and up $6 a barrel for the week. Nationally, gasoline at the pump cost 12 cents a gallon more than it did a week ago, according to AAA.
The major reason is concern that Israel will try to bomb Iran?s uranium-enrichment facilities, oil traders say. If that were to happen, Iran might try to block oil shipments moving through the Strait of Hormuz. Because more than 17 million barrels of oil per day move through the waterway ? 20 percent of all oil traded worldwide ? any blockade would create oil shortages.
?The markets are convinced there will be some type of confrontation,? says Chicago-based Phil Flynn, an energy analyst at PFG Best, a broker. ?People around the globe are scrambling to get supplies.?
It hasn?t helped that Europe and Russia are experiencing a harsh winter, driving up demand for home heating oil. More?Asian nations, moreover, are beginning to reduce their consumption of Iranian crude oil to comply with a Western-led crackdown on firms that buy the oil. According to some press reports, India is reducing its purchases of Iranian crude by 10 percent, while some Chinese buyers are cutting back by 20 percent. Japan has indicated it will try to reduce its purchases by more than 10 percent.
These nations are now trying to round up replacement oil, plus stockpile more in case there is a conflict, says Mr. Flynn. ?People are starting to hoard oil supplies to make sure they have supplies for whatever may be coming,? he says. ?If we can avoid a confrontation with Iran, the market will collapse.?
The rising price of crude oil is rippling quickly through to the price of gasoline. On Friday, the national average price of a gallon of gasoline surged another 4 cents, to almost $3.65, according to AAA.
Given the price of gasoline on the futures market, pump prices may well rise higher in the weeks ahead. Gasoline futures prices imply $4 a gallon nationally by May, according to Tancred Lidderdale, an energy analyst at the Energy Information Administration. In some parts of the country, especially California, Hawaii, and Alaska, prices are already higher than $4 a gallon.
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