Oil prices are approaching last year's highs as tensions increase over Iran's nuclear program. The rise pushed gasoline prices on Friday to a national average of $3.65 per gallon, the highest ever for this time of year.
Western nations fear Iran is building a 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.
As tensions rise, investors are snapping up oil contracts in anticipation of a protracted standoff with one of the world's top oil exporters.
Benchmark West Texas Intermediate crude rose by $1.42 to $109.26 per barrel in New York. Brent crude rose by $1.28 to $124.90 per barrel in London.
WTI peaked near $114 a barrel last May, while Brent rose above $126 per barrel.
The price of gasoline, which is made from crude oil, has soared as oil prices rise. The national average jumped by nearly 12 cents per gallon in a week, with state averages above $4 per gallon in California, Alaska and Hawaii.
It looks like they'll keep climbing.
Tom Kloza, publisher and chief oil analyst at Oil Price Information Service, said pump prices will add at least another 10 to 15 cents per gallon in coming days to reflect a recent jump in wholesale markets. The national average will likely peak in late April, Kloza said, rising as high as $4.25 per gallon.
The rise will weigh on the economy, pushing leisure and business travel costs higher. Every one-cent increase in the price of gasoline costs the economy $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, Wash., is the third-largest on the West Coast with a production capacity of 230,000 barrels per day.
The fire 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. The government tried that last summer after the Libyan uprising forced that country's oil fields to shut down. Prices dipped slightly, but they eventually rebounded and are now close to last year's peak.
Independent oil analyst Andrew Lipow pointed out that the U.S. has adequate oil supplies right now, and a release of extra supplies 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 a penny to $3.31 per gallon, while gasoline futures rose by 3 cents to $3.15 per gallon. Natural gas prices fell by 10 cents to $2.52 per 1,000 cubic feet.