Oil hovers above $106 as Iran tensions mount

[February 22, 2012]  SINGAPORE (AP) -- Oil prices hovered above $106 a barrel Wednesday in Asia amid concern that conflict over Iran's nuclear program could lead to global crude supply disruptions.

Benchmark crude for April delivery was up 11 cents to $106.36 per barrel late afternoon Singapore time in electronic trading on the New York Mercantile Exchange. The contract rose $2.65 to settle at $106.25, the highest since May, in New York on Tuesday.

Brent crude was down 16 cents at $121.50 per barrel in London.

Oil has jumped from $96 earlier this month amid escalating tension between Western powers and Iran.

On Tuesday, Iran Gen. Mohammed Hejazi warned his country is prepared to carry out a pre-emptive strike against any nation that threatens Iran. His comments followed Iran's announcement of war games to practice protecting nuclear and other sensitive sites -- viewed as a message to the U.S. and Israel that the Islamic Republic is ready both to defend itself and to retaliate against an armed strike.

Iran said over the weekend that it will stop selling oil to Britain and France in retaliation for a planned European oil embargo this summer.

The move was mainly symbolic -- Britain and France import almost no oil from Iran -- but it raised concerns that Iran, which produces almost 4 million barrel a day of crude, could take the same hard line with other European nations that use more Iranian crude.

"A real stoppage of 4 million barrels a day will send crude markets to at least $130," Carl Larry of Oil Outlooks and Opinions said in a report. "A stoppage longer than a month will push that number to $150. Damage to oil fields or transport areas will add even more premium that will not go away for years."

Iran's Foreign Ministry also said Tuesday that visiting inspectors won't be able to tour the country's nuclear facilities. An International Atomic Energy Agency team arrived in Tehran this week hoping to monitor Iran's nuclear program. Instead it will only hold talks with officials about ways to cooperate in the future.

The West fears Iran's nuclear program is aimed at developing atomic weapons. Iran denies the charges, and says its program is for peaceful purposes.

Some analysts expect an improving U.S. economy and tight global crude supplies will also help boost prices. Goldman Sachs said it expects crude to rise to $123.50 during the next 12 months.

"Stronger-than-expected demand against limited inventory and scarce excess production capacity leaves the market extremely vulnerable to price spikes in the near-to-medium term," Goldman Sachs said in a report. "It is important to emphasize that a spike in oil prices would most likely inflict damage on the economic recovery."

In other energy trading, heating oil fell 0.1 cent to $3.23 per gallon and gasoline futures slid 0.4 cent to $3.24 per gallon. Natural gas added 0.5 cent to $2.63 per 1,000 cubic feet.

[Associated Press; By ALEX KENNEDY]

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