War posture spikes oil to US$110

Oil prices are approaching last year's highs as tensions increase over Iran's nuclear programme.

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.

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

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

The price of gasolene, which is made from crude oil, has soared with oil prices. The national average jumped by nearly 12 cents per gallon in a week, with state averages above US$4 per gallon in California, Alaska and Hawaii.

As both sides dig in for a protracted standoff, investors are snapping up oil contracts in case fighting breaks out in the heart of 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."

Independent oil analyst Andrew Lipow pointed out that the US 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 2 cents to finish at $3.32 per gallon, while gasolene futures rose by 4 cents to end at $3.15 per gallon. Natural gas prices fell by 7 cents to finish the week at $2.55 per 1,000 cubic feet.

- AP