NEW YORK — Oil prices climbed to the highest level in five weeks after Iran said it will cut off some crude exports to Europe in retaliation for a planned embargo later this year.
Benchmark U.S. crude rose by $1.06 to end the day at $101.80 per barrel in New York. Brent crude, which is used to price foreign oil that's imported by refineries, rose by $1.58 to finish at $118.93 per barrel in London.
Stopping Iranian shipments means European refineries will have to find new sources of oil sooner than they expected. The European Union, which buys about 18 percent of Iran's total crude exports, had planned to embargo Iranian oil this summer to pressure the country to abandon its nuclear program.
Western nations, including the U.S., fear that Iran is building a nuclear weapon. Iran denies the claim.
The EU embargo, announced last month, was planned to begin after July to give refineries time to switch their supply contracts to other countries. Iran's move could force them to switch those contracts faster, increasing demand in the short term.
Iran's state media reported early Wednesday that the country was taking steps to cut off oil exports to six European countries. The reports said that Iran halted exports to France and the Netherlands, and has given an ultimatum to Italy, Spain, Portugal and Greece to either sign long-term contracts with Iran or be cut off as well.
Independent oil analyst Jim Ritterbusch said the announcement probably was a bluff to push oil prices higher. If so, it worked.
"They're trying to keep the market hyped up," Ritterbusch said. "Iran knows that by cutting off exports, it only hurts themselves. It reduces their revenue stream."
Iran gets about half of its revenue from oil exports. Experts say Iran will likely sell oil to China and India to make up for the loss of European sales. That oil probably will be sold at a discount, however, since much of the international community is turning its back on Iranian oil.
If Iran does stop selling oil to Europe, refineries in the eurozone will look to Libya and Saudi Arabia to replace Iranian oil, analysts said. If those countries can't deliver, oil prices could increase further in coming months, said Gene McGillian, a broker and oil analyst at Tradition Energy.
Oil prices also were supported earlier in the day by strong gross domestic product reports from Germany and France. The reports indicate that Europe's economy may not have contracted as much as feared last year, analysts said.
U.S. oil supplies fell unexpectedly last week, though the government says demand remains weak. The Energy Information Administration said the four-week average for petroleum demand dropped by 4.6 percent, and gasoline demand fell by 6.4 percent, when compared with the same period last year.
Retail gasoline prices rose by less than a penny to a national average of $3.52 per gallon, according to AAA, Wright Express and Oil Price Information Service. A gallon of regular is 13 cents more than it was a month ago and 39 cents higher than at the same time last year.
In other energy trading, heating oil rose by 3 cents to end at $3.19 per gallon and gasoline futures rose by 2 cents to finish at $3.01 per gallon. Natural gas futures fell by 11 cents, or 4.2 percent, to end at $2.43 per 1,000 cubic feet.