Oil prices climbed above $98 per barrel Tuesday after Iran again threatened to cut off supplies to Europe.
Iranian lawmakers are pushing a plan to halt crude exports crude to Europe before the European Union begins an oil embargo this summer. The EU embargo is part of a broader strategy by Western nations to pressure Iran to abandon a nuclear program that the U.S. and other nations believe is developing weapons.
Iran, the world's fourth-largest oil producer, ships 18 percent of its crude exports to the European Union. When the embargo takes effect in August, experts predict Iran will make up for the lost business by selling more oil to China and India. European nations say they need time to find new suppliers.
Iran is trying to speed up the process and force the EU to replace its oil sooner than expected.
"Iran will make the sanctions ineffective as it did in the past, and it will continue selling oil," Iranian Vice President, Mohammad Reza Rahimi, said in a statement reported Tuesday by the official IRNA news agency.
On Monday President Barack Obama announced sanctions on Iran's central bank that will make it harder for Iran to sell its oil to other countries.
Benchmark U.S. crude rose by $1.50 on Tuesday to end the day at $98.41 per barrel in New York. Brent crude, used to price foreign oil varieties, rose by 30 cents to finish at $116.23 per barrel in London.
U.S. oil prices were on the decline in recent days, as supplies grew at the important Midwest distribution hub in Cushing, Okla. The possibility of Iran stopping crude sales to Europe, and creating tighter supplies, boosted prices around the globe.
PFGBest analyst Phil Flynn said there was some "panic buying" Tuesday because there was concern that Iran really would cut off the oil to Europe.
Encouraging economic news in the U.S. also helped push oil prices higher. The government said that the number of available jobs jumped to a three-year high in December, another sign that the economy continues to recover. And the Federal Reserve said consumer borrowing rose by $19.3 billion in December after a $20.4 billion gain in November. Those are the biggest monthly gains in a decade, and bode well for more consumer spending and greater energy demand.
MasterCard SpendingPulse reported that American drivers continue to use less gasoline, however. Its survey, which is based on credit card purchases at service stations as of Feb. 3, estimated that average U.S. gasoline demand was about 5 percent lower than at the same time last year.
Gasoline demand started falling in the U.S. nearly a year ago as pump prices rose near $4 per gallon. Experts say gasoline prices will climb even higher in 2012 and 2013 as world oil demand grows.
The Energy Information Administration said Tuesday that it expects the annual average price for gasoline in the U.S. to increase by 2 cents in 2012 _ to $3.55 a gallon _ and by another 4 cents in 2013, to $3.59 per gallon. The current forecast is about 8 percent higher than what the government expected last January.
Retail gasoline prices were flat on Tuesday at a national average of $3.48 per gallon, according to AAA, Wright Express and Oil Price Information Service. Prices remain at the highest levels ever for this time of year. A gallon of regular is 11 cents higher than it was a month ago and 36 cents higher than a year ago.
In other energy trading, natural gas prices fell by 8 cents, or 3 percent, to end at $2.47 per 1,000 cubic feet. They've been holding near 10-year lows as the nation's supplies remain well above average for this time of year.
Chesapeake Energy Corp. and ConocoPhillips have announced that they would cut production this year, but analysts say it will take bigger cuts by more companies to reduce the nation's gas supply and raise prices. In the meantime consumers stand to benefit from lower heating and electricity bills.
Also on Tuesday, heating oil rose 2 cents to finish at $3.19 per gallon and gasoline futures were flat, finishing at $2.93 per gallon.
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