The prices of oil dropped on Wednesday, following a statement that Saudi Arabia will offset any loss of oil from a possible Iranian blockade of the Strait of Hormuz, which is a crucial waterway in the Middle East through which a third of the tanker traffic in the world flows.
A Saudi oil ministry official, who requested anonymity because he was not authorized to talk about the matter, informed The Associated Press that the country and other Gulf producers are ready to provide more oil if Iran tries to block the strait. He did not specify alternative routes that could be used to transport oil. These routes would possibly be more expensive and it would take longer before the crude oil gets to the region's customers.
Iran's vice president declared on Tuesday, local time, that his nation was ready to close the strait if western countries embargo its oil because of Iran's current nuclear program. On Wednesday, the nation's head of navy added that his fleet can block the waterway if necessary. His statements came as Iran engaged in a 10-day drill on international waters near the strategic route. At its narrowest point, the strait is 21 miles wide.Lt. Rebecca Rebarich, a spokeswoman for the US Navy's Fifth Fleet, commented that anyone who threatens to disturb freedom of navigation in an international strait is "clearly outside the community of nations," adding that any disruption "will not be tolerated."
The Fleet is responsible for naval operations in the Red Sea, the Arabian Sea and the Persian Gulf.Some analysts believe that the Iranian threats are more rhetoric than reality. Energy consultant and trader Stephen Schork said in a report that they "doubt" political posturing will "turn into action."Benchmark crude dropped US$1.98 (NZ$2.57) in New York to end at US$99.36 (NZ$129.22) per barrel. Meanwhile, Brent crude declined US$1.71 (NZ$2.22) to finish at US$107.56 (NZ$139.89) per barrel in London.
Oil prices also dropped on Wednesday, local time, by relentless concerns over Europe and future demand for oil as the economy in the region weakens.The European Central Bank stated that the continent's banks parked a record $590.72 billion overnight with the ECB, illustrating distrust in the banking system of Europe.
On the other hand, the average pump price of gasoline in the U.S. increased a penny on Wednesday to US$3.24 per gallon, which is around 4 cents greater than the previous week and 21 cents more than a year ago.In other energy futures trading, heating oil declined 2 cents to end at US$2.89 per gallon. Gasoline dropped 4 cents to finish at US$2.65 per gallon. Natural gas is at US$3.08 per 1000 cubic feet at the end of the day, a 3-cent drop. [source: Yahoo]