LONDON – Oil prices rose above $74 a barrel Tuesday amid fear that international pressure on Iran to modify its nuclear program may lead to supply cuts from the key exporter.
An Iran official earlier in the day reiterated the country's intention to keep enriching uranium, while U.S. Undersecretary of State Nicholas Burns said he believed European governments will agree to sanctions against Iran.
Analysts expect energy futures to remain high, as traders keep one eye on issues abroad — Iran's nuclear program, rebels in Nigeria cutting off oil supplies, and the possibility of terrorist attacks on oil facilities — and another eye on problems on the home front, notably tight U.S. gasoline supplies going into the summer driving season.
"The trend is still up," said BNP Paribas commodity futures analyst Tom Bentz. "Unless something changes, I don't see anything out there that's going to cause any big drops."
Light, sweet crude futures for June delivery rose 91 cents to settle at $74.61 a barrel Tuesday on the New York Mercantile Exchange — moving closer to the intraday peak of $75.35 reached briefly on April 21.
Pump prices crawled higher as well, nearing the record highs seen in early September after Hurricane Katrina struck the Gulf coast and the region's oil facilities. On Tuesday, the average cost of a gallon of regular, unleaded gasoline was $2.92, up 35 cents from a month ago, according to AAA's daily fuel gauge report. U.S. drivers are now paying about 14 percent more to fill their tanks than a year ago.
The United States, Britain and France plan to introduce a new Security Council resolution this week that would make Iran's compliance with their demands mandatory, and enforceable through sanctions or military action.
As of yet, there has been no talk of economic sanctions that could slow Iran's oil exports. China is a big customer for Iranian oil, and a cutoff of its oil exports would likely send oil prices surging.
"At some stage, I think Iran will use its oil as a weapon to negotiate with the U.N. and the U.S., which would push up the market — although they are unlikely to stop exports altogether because they need the money," said Tetsu Emori, chief commodities strategist with Mitsui Bussan Futures in Tokyo.
U.S. Energy Secretary Samuel Bodman said Tuesday the market is worried about a supply disruption, and "there's no doubt a (fear) premium" is reflected in today's prices.
Also lifting oil prices Tuesday, Saudi Arabia's oil minister said that terrorists would continue to target oil facilities around the world. "They're not going to stop at Abqaiq," Ali al-Naimi said, according to Dow Jones Newswires, referring to an attack on Saudi Arabia's largest oil-gathering center thwarted earlier this year.
"It's just one more thing to keep the market nervous, just remind us all about the possibility of attacks in Saudi Arabia," the analyst Bentz said.
Iran's deputy oil minister, M. H. Nejad Hosseinian, said Tuesday crude oil prices are likely to hit $100 a barrel this winter as demand outpaces supply. "By winter, it is very much possible," Hosseinian said, when asked by reporters in India if global crude prices would peak at around $100 barrel.
Bolivia's moves to secure greater state control of its energy reserves and production also supported prices, as did glitches at some U.S. and foreign refineries, despite the relatively small amount of gasoline shortfalls involved.
On Wednesday, the Department of Energy releases its weekly petroleum inventory report, and according to a Dow Jones Newswires survey, most market analysts predict it will say that gasoline stocks declined for the ninth straight week.
Such a decline could happen even if runs at refineries increased, Bentz said, as they're dealing with the transition from gasoline with MTBE — an additive found to be a groundwater pollutant — to gasoline with ethanol.
Gasoline futures rose 2.85 cents Tuesday to settle at $2.1751 a gallon, and heating oil rose 2 cents to settle at $2.0788 a gallon. Natural gas prices rose 5.1 cents to settle at $6.746 per 1,000 cubic feet.
In London, Brent crude for June rose 75 cents to settle at $74.64 a barrel on the ICE futures exchange.
Crude oil prices are about 40 percent higher than a year ago. But accounting for inflation, prices are still about 20 percent below the records reached in 1981, when supplies became tight after a revolution in Iran and a war between Iraq and Iran.
Naimi said Tuesday that high crude oil prices are of no long-term benefit to either producers or consumers and contribute to market instability.
"Energy security cannot be sustained when prices are extreme — too high or too low," the Saudi oil minister said in remarks to an energy conference.
He said Saudi Arabia is committed to working with the United States to keep oil markets stable, including plans to increase production to 12.5 million barrels a day by 2009. But he said that producing adequate supplies must involve other suppliers and conservation.