The price of oil jumped more than 4 percent Tuesday to the highest level since May on renewed fears of a military conflict with Iran.
Iran is again threatening to block a critical Persian Gulf shipping route in response to a European embargo of Iranian oil. The country has sparred for months with the West over its nuclear program.
More than a third of the world's seaborne oil is shipped out of the Persian Gulf, so any move by Iran to shut the Strait of Hormuz would certainly increase the risk for violence in the region, slowing tanker traffic. The New York Times reported Tuesday that the U.S. has sent military reinforcements into the Persian Gulf to deter the Iranian military from any possible attempt to block the vital waterway.
Benchmark U.S. crude added $3.83, or 4.6 percent, to $87.57 per barrel in New York. Prices rose as high as $88.04 earlier in the day, the highest since May 31.
Brent crude, which sets the price of oil imported into the United States, rose above $100 for the first time in three weeks. Brent added $3.53, or 3.6 percent, to $100.87 per barrel in London.
Iran has been talking about blocking the Strait of Hormuz since late last year in response to financial sanctions by the U.S. and other Western nations. Many traders and analysts have dismissed those threats as simple posturing to prop up the price of oil. Now, with the European embargo in effect as of Sunday, investors say the market is bracing for a response from Iran.
"The concern isn't that Iran might sink a ship," said Michael Lynch, president of Strategic Energy & Economic Research. "It's for a longer conflict that will keep insurers wanting to stay away from the Gulf, which would cause a disruption of shipping that could last a few weeks. That's a major disruption of the world's oil."
Combined with Friday's big gains in response to Europe's latest plan to manage its debt crisis, oil has gained $10 per barrel in less than a week.
That should bring an end to the recent drop in pump prices.
Gas prices rose by just a fraction of a penny overnight Tuesday, but it was the increase in 77 days. The national average is now $3.329, according to auto club AAA, Wright Express and Oil Price Information Service. Experts say pump prices will range between $3.30 and $3.50 through Labor Day.
Wholesale gasoline futures added 8.91 cents to $2.713 per gallon. Wholesale gas has risen 8 percent in the past week.
In other futures trading, heating oil added 7.11 cents to $2.747 per gallon while natural gas rose by 3 cents to $2.854 per 1,000 cubic feet.
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