MercoPress. South Atlantic News Agency

Oil at US$66 over Iranian tensions

Oil prices surge as tensions in Iran

Oil prices briefly surged above US$66 a barrel yesterday, driven to new six-month highs by the fear that strained relations between Iran and the West could put exports in jeopardy, as US gasoline inventories are declining and demand is strengthening.

Iran has detained 15 British navy personnel, rescinded its pledge to release a female British sailor, and a top official said the captives may be put on trial. Worries over the recent developments have led energy traders to put an extra premium on prices, which had already been rising due to seven straight weeks of declines in US gasoline inventories amid strong demand. Gasoline stocks remain in the upper part of the average range for this time of year, but US gasoline demand averaged 9.2 million barrels a day over the past four weeks, up 1.6 percent from the same period last year, the Energy Information Administration said Wednesday. Wachovia economist Jason Schenker pointed out that these demand levels weren't seen until May last year. ''Supply is down, demand is up â€" these are fundamentals that mean higher prices,'' said Schenker. ''As long as the unemployment rate remains low and disposable income is up, gasoline demand is likely to be strong.'' He added that he believes the ''probability seems very small'' that there will be war with Iran. Nevertheless, in an environment of high demand and falling domestic supplies, traders are closely monitoring news out of the region. Iran, the world's fourth-largest oil producer, is located along the Strait of Hormuz, through which tankers ship about 17 million barrels of crude oil per day, according to the EIA. That accounts for two-fifths of the world's crude oil traded by tanker, and about one-fifth of total oil production. The exports through the narrow waterway go to the United States, Western Europe and Japan, and traders are betting that if hostility escalates, those supplies would be disrupted. Light, sweet crude for May delivery soared US$2.14 to US$66.22 a barrel in early afternoon trading on the New York Mercantile Exchange before slipping back below $66 once again. The contract settled at US$64.08 a barrel Wednesday, its highest closing price since finishing at US$65.61 on September 11, 2006. The last time it closed above US$66 a barrel was September 8, 2006. Brent crude on London's ICE futures exchange rose US$1.26 to US$67.04 a barrel Gasoline prices at the pump â€" which had surged about 20 percent since the beginning of the year, even before Iran detained the British sailors â€" continue to rise. The average US price for a gallon (3.8 litres) of regular, unleaded gasoline cost US$2.620 yesterday, up from US$2.603 Wednesday and 12 cents higher than a year ago, according to AAA. Schenker noted that the average US pump price is the highest it's ever been for March, and said it could reach a range of US$2.75 to US$3.35 a gallon by the summer. The highest recorded national average for unleaded gasoline was US$3.057 a gallon in September 2005, according to AAA, after Hurricane Katrina hit the Gulf Coast. Iranian authorities have been detaining the British marines and sailors since Friday on claims they had trespassed into Iranian territory. Britain maintains they were in Iraqi waters. The incident comes months into a standoff between Iran and the United Nations over the country's uranium enrichment program. ''Until there is some kind of breakthrough in negotiations on the nuclear issue, tensions are likely to rise between the Allies and Iran. As long as the tension lingers, we are likely to have periodic eruptions that will bring back the specter of Iran blocking the Straits of Hormuz,'' Peter Beutel of Cameron Hanover wrote in a note. Crude oil on Nymex had spiked briefly above US$68 a barrel in after-hours trading Tuesday on a rumor, denied by the US military, that Iran had fired on a US ship in the Persian Gulf. In other trading on Nymex yesterday, gasoline rose 7.03 cents to US$2.1275 a gallon; heating oil rose 4.44 cents to US$1.8718 per gallon, and natural gas was down less than a cent at US$7.668 per 1,000 cubic feet. (AP)