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Oil, gas prices spike amid Israel-Iran tensions

Oil price surged on Wednesday after Israel's foreign ministers said two Iranian warships planned to sail through the Suez canal. Gas hit a 28-month high despite ample supplies.
/ Source: msnbc.com news services

Oil price surged on Wednesday after Israel's foreign ministers said two Iranian warships planned to sail through the Suez canal. Gas prices hit a 28-month high despite ample supplies.

Foreign Minister Avigdor Lieberman called the move the latest "provocation" by Iran, which Israel sees a major threat due to the OPEC nation's nuclear program. The countries' geographical distance has kept them from open confrontation, but Syria is one of Israel's neighbouring foes and an ally of Tehran.

The news lifted Brent crude to 29-month highs and added to Middle East jitters after reports of clashes in Iran, Yemen and Bahrain, raising concerns about disruption to oil flows.

Unrest in Egypt helped push Brent crude over $100 a barrel in late January, helping send its premium to U.S. oil futures to record levels over $16 a barrel.

The national average for regular gasoline rose to $3.133 a gallon. That's about $1.20 more than the price at the pump two years ago, according to AAA, Wright Express and the Oil Price Information Service.

Just eight states have average prices less than $3 a gallon. The cheapest is $2.94 a gallon is in Missouri. Hawaii has the highest average of $3.746 a gallon.

Tom Kloza, OPIS chief oil analyst, predicted gas prices will range from $3.50 to $3.75 a gallon this spring and then drift lower, to between $3 and $3.40 a gallon.

"I do believe that this year is front-end loaded," Kloza said. "I think that perhaps the first third of the year sees higher retail prices for gasoline and diesel . than the middle or final thirds."

Average gas prices have climbed steadily from about $2.80 a gallon in November even though consumer demand has been weak and inventory levels remain high. The Energy Department said Wednesday that supplies of crude and gasoline both rose again last week while distillates, which include heating oil and diesel, declined. All three products are at or above the average range for the past five years.

Demand for gasoline remains weak and may be getting weaker. In its weekly survey Mastercard SpendingPulse said gasoline consumption across the country fell 3 percent last week compared to the week before and suggested that higher prices may be discouraging driving and trips to the gas station.

Higher gas prices are a result of several factors that have created a bottleneck for supplies of West Texas Intermediate crude stored at Cushing, Okla., which is the delivery point for oil traded on the New York Mercantile Exchange.

More North American oil is being produced and delivered to the Cushing facility, but existing pipelines can't move all of the crude out to refineries. And there are no pipelines to Gulf coast refineries, which have the capacity to produce about half the nation's daily supply of gasoline.

In London, Brent crude rose $2.14 to settle at $103.78 per barrel on the ICE Futures exchange. It hit $104.52 earlier, the highest level since September 2008. Benchmark West Texas Intermediate crude for March delivery rose 67 cents to settle at $84.99 a barrel on the New York Mercantile Exchange.

Brent's stronger gains pushed its premium to U.S. crude to $15.56 a barrel on Wednesday, as high inventory levels at the Cushing, Oklahoma, delivery point for the New York Mercantile Exchange oil futures contract weigh on U.S. prices.

A rare show of unrest in Libya added to fears that the kind of unrest that toppled the presidents of Egypt and Tunisia could spread to oil-producing countries in the Middle East.

"Troubles in the Middle East are back on the agenda, protests in Bahrain and Saudi have drummed up political tension," said Rob Montefusco, an oil trader at Sucden Financial.

Crude earlier rose following the release of U.S. inventory data from the U.S. Energy Information Administration, which showed an 860,000-barrel build in crude inventories in the week to Feb. 11, below analyst expectations.

Stockpiles at Cushing rose by 250,000 barrels, while crude imports fell by 653,000 barrels per day to 8.23 million bpd.