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Published: Monday, 1/23/2012 - Updated: 3 years ago

Oil prices rise as Iran renews threats to close strategic waterway

EU formally adopts embargo against Iran


NEW YORK — Oil prices climbed near $100 per barrel Monday as Iran again threatened to block shipments of crude from the Persian Gulf.

Natural gas prices also rose more than 7 percent after one of America’s biggest natural gas producers said it would cut production and exploration this year.

Tanker traffic out of the Persian Gulf has been a major concern for oil traders. Iran says it could close the Gulf to tanker traffic, if the West implements an oil embargo. On Monday, the European Union agreed to do just that.

The EU said its refineries will stop buying Iranian crude after July. It also froze assets of Iran’s central bank. The sanctions are meant to force Iran to talk with the West about its nuclear program. Iran says its nuclear program is peaceful, but Western nations suspect it is trying to build nuclear weapons.

The embargo itself isn’t expected to affect world supplies as oil markets are reshuffled. Analysts say China, which is one of the biggest buyers of Iranian crude, probably will buy more Iranian oil at below-market prices when the embargo begins. That will reduce China’s demand from other oil-producing countries that would then sell more to Europe.

“Iran needs to sell its oil to someone,” independent analyst and trader Stephen Schork said. “Outside the West, Iran really has only one buyer: China. That means China’s probably going to get some sweetheart deals.

Experts say Iran doesn’t have the firepower to close off the narrow Strait of Hormuz that tankers use to pass through the Gulf. But a conflict there could still clog the waterway with military vessels and force the world’s refineries to wait for crucial oil shipments.

“Benchmark crude rose by $1.51 to $99.84 per barrel in New York. Brent crude, which is used to price foreign oils that are imported by U.S. refineries, rose by 94 cents to $110.80 per barrel in London.

In the U.S., natural gas prices jumped Monday when Chesapeake Energy said it will cut production and exploration because of cheap prices and a massive buildup in supplies. Natural gas production has been surging in the U.S. thanks to new techniques that helped the industry aggressively drill into underground shale deposits.

Natural gas prices have dropped to the lowest wintertime level since 2002. The Chesapeake announcement pushed futures prices 17 cents, or 7.3 percent, higher to $2.52 per 1,000 cubic feet.

At the pump, the national average for a gallon of gasoline stayed at $3.38, according to AAA, Wright Express and Oil Price Information Service. That’s nearly 16 cents higher than it was a month ago and up 27 cents from a year ago.

In other energy trading, heating oil rose by 4 cents to $3.02 per gallon, while gasoline futures rose about a penny to $2.79 per gallon.

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