Oil prices soared Tuesday as tensions grew over key Persian Gulf oil shipments.
Benchmark crude jumped by $4.13, or 4.2 percent, to end the day at $102.96 per barrel in New York.
Brent crude, which is used to price foreign oil varieties that are imported by U.S. refineries, rose by $4.75, or 4.4 percent, to finish at $112.13 a barrel in London.
Prices climbed as soon as exchanges opened for the first day of 2012 trading. Commodity prices tend to rise at the beginning of January as investors start the new year with a fresh round of trading. This year prices were driven up by heightened concerns that Iran might try to close the Strait of Hormuz in the Persian Gulf to oil tankers, if Western nations impose new sanctions.
Iran warned the U.S. to stay out of the strategic waterway, where one-sixth of the world's oil shipments pass every day. On Monday its navy fired a cruise missile as part of a military exercise.
Military experts say Iran's navy is too small to pose a serious challenge to the United States, but the missile exercise showed that it still has the ability to frustrate the international oil trade.
"A ship on the ocean is an obvious target," said Michael Lynch, president of Strategic Energy & Economic Research. "Even the Iranians can hit one."
The U.S. and European nations are mulling further economic sanctions against Iran because of its nuclear program. Doing that comes with some major economic risks, however. A standoff with Iran could hurt the global economy, slowing oil supplies at a time when the world needs every drop. Global oil demand is expected to rise to a record 89.5 million barrels per day in 2012.
Oil producers are expected to meet that demand, but a prolonged conflict could lead to shortages and fuel price spikes that stifle economic growth. Recent reports that the world's factories continue to ramp up underscored the growing demand for crude. Manufacturers ended 2011 on a high note, increasing activity in December in the U.S., China and India, according to separate surveys.
U.S. manufacturing, which was one of the first areas to grow after the recession, continued to gain ground in December. Factories hired more workers and boosted production to accommodate the biggest growth in orders since April. A private trade group said that U.S. manufacturing expanded last month at the fastest pace in six months.
The Commerce Department said that U.S. construction spending jumped in November on a spate of new projects for single-family homes and apartments.
In other energy trading Tuesday, heating oil rose 12.4 cents, or 4.3 percent, to end the day at $3.0382 per gallon, while gasoline futures rose by 9.12 cents, or 3.4 percent, to finish at $2.7486 per gallon. Natural gas was virtually unchanged, ending at $2.9930 per 1,000 cubic feet.
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