Oil prices rising to near 2011 highs

Michael Morris prepares to put gas in his car Friday, Feb. 24, 2012 in Philadelphia. 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. (AP Photo/Alex Brandon)

NEW YORK, N.Y. - Oil prices are approaching last year's highs as tensions increase over Iran's nuclear program.

On Friday benchmark West Texas Intermediate crude rose by $1.94 to end the week at US$109.77 a barrel in New York. Brent crude rose by $1.85 to finish at US$125.47 in London.

WTI peaked near US$114 a barrel last May, while Brent rose above US$126 per barrel.

Western countries say they fear Iran is building a nuclear 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.

The United Nations said Friday that Iran has responded to the recent scrutiny by speeding up production of higher-grade enriched uranium, feeding concerns that it is developing a bomb.

As both sides dig in for a protracted standoff, investors are snapping up oil contracts in case fighting breaks out in the heart of the one of the world's biggest oil-producing regions.

"Everyone's pricing in the potential for war now," independent analyst Stephen Schork said. "Without a concrete resolution, nobody knows how high this can go."

Israel hasn't ruled out an attack on Iran, and Iran has said it is ready to strike pre-emptively, possibly targeting the Strait of Hormuz, if it is threatened. The Persian Gulf passageway is a potential choke point for oil supplies. One-fifth of the world's oil tankers pass through it every day.

The price of gasoline, which is made from crude oil, has soared with oil prices, something which will weight on the economy as it push both leisure and business travel costs 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.

Washington tried that last summer after the Libyan uprising shut down that oilfields. Prices dipped slightly but eventually rebounded.

Independent oil analyst Andrew Lipow pointed out that the United States has adequate oil supplies right now and a release of reserves 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 neighbours in some way" and curtail oil production in the entire region.

In other energy trading, heating oil rose by two cents to finish at US$3.32 a U.S. gallon (2.79 litres), while gasoline futures rose by four cents to end at US$3.15 a gallon. Natural gas prices fell by seven cents to finish the week at US$2.55 per 1,000 cubic feet.