Crude Tops $105, Hits 9-Month Highs as Iran Halts Some EU Exports
Crude oil leaped to fresh nine-month highs and breached the $105 level on Monday as geopolitical jitters increased after Iran cut oil exports to the U.K. and France over the weekend.
The higher energy prices threaten to put new pressure on or even derail the U.S. economic recovery, which in recent months has surprised many by meaningfully picking up steam.
Traders bid oil prices higher after Iran reacted to new European Union sanctions by curtailing crude sales to British and French companies.
European officials said they are “well stocked” with oil and petroleum products and Saudi Arabia has pledged to help, but that didn’t prevent the energy markets from responding to the news.
“The fact is prices are going up as world oil demand is going up. The geopolitics in the Middle East is playing a big role in that,” Andy Lipow of Lipow Oil Associates told FOX Business. “It is really shocking what we’ve seen over the last six weeks."
Lipow, who projected as much as a 30-cent rise in gasoline prices over the next two months, said he believes there is at least a $12 a barrel risk premium in the current price of oil due to fears over a supply disruption.
The last trade on the current March contract was $104.92 a barrel, up $1.68, or 1.63%. The final trade on the April contract was $105.26, up $1.66, or 1.60%. The April contract traded as high as $105.80 -- its highest intraday level since May 5. Brent crude rose 47 cents a barrel, or 0.39%, to end at $120.05, leaving it just under 18% away from its all-time record settle of $146.08 set in July 2008.
In addition to concerns about Iranian exports, some are worried about Iran’s threat to shut down the crucial Strait of Hormuz or the repercussions of a potential military attack by Israel on Iranian nuclear sites.
A number of British and French companies are believed to have already stopped importing Iranian crude even before the new EU sanctions take effect on July 1 to stop buying the country’s oil.
Besides the Iranian worries, crude oil benefited from news in the beleaguered eurozone, which is expected to sign off on a $172 billion bailout of Greece. By approving the rescue package, the monetary union won’t have to deal with a potentially disastrous default by Greece, for now at least.
The rise in oil prices comes after crude jumped 4.6% last week, its strongest weekly gain since the week prior to Christmas. Crude is now on track for its fifth rally in the past six sessions and is off less than $10 from its 52-week high of $113.93 that was set in April 2011.
Triple-digit oil prices mean increased headaches for consumers and businesses alike. Most Americans will feel the pain through higher gasoline prices, while businesses need to grapple with higher transportation and manufacturing costs.
At $3.56 a gallon, gas prices are at their highest level ever for this time of the year, according to AAA. Regular gas prices stood at $3.565 a gallon on Monday, up 1.53% from a week ago and 12.5% from a year ago when they were $3.168.
Lipow said he believes the national average price of gasoline will be as high as $3.90 a gallon this month and significantly higher on the coasts. He said for oil prices to meaningfully drop in the near term, there would need to be a “breakthrough” in the negotiations with Iran over nuclear weapons.
U.S. equity markets were closed on Monday in observance of Presidents' Day, but stock futures still ticked higher despite the oil-price jump. In late afternoon action, the S&P 500 was up 0.50% to 1366.50.