Oil Prices Predicted to Remain Above $100 a Barrel Next Year

With Iran threatening to cut off about a fifth of the world’s oil supply by closing the Strait of Hormuz and unrest in Iraq endangering the ability to increase production there, financial analysts say prices for two important oil benchmarks will average from $100 a barrel to $120 a barrel in 2012.

For consumers, who have been driving less and buying more fuel-efficient cars, weakened demand has helped lower gasoline prices 70 cents since May, to a national average of $3.24 for a gallon of regular unleaded, according to the AAA Fuel Gauge Report.

Now, though, the focus has turned to Iran. On Wednesday, Iran and the United States sharpened their tone over Iran’s vow to close the Strait of Hormuz if Western powers tried to stifle Iran’s petroleum exports.

The catalyst for the Iranian threats are new efforts by the United States and the European Union to pressure Iran into ending its nuclear program, which Iran has refused to do despite four rounds of sanctions imposed by the United Nations Security Council.

Those sanctions have not focused on Iran’s oil exports. But in recent weeks, the European Union has talked openly of imposing a boycott on Iranian oil, and President Obama is preparing to sign legislation that, if fully enforced, could impose harsh penalties on all buyers of Iran’s oil, with the aim of severely impeding Iran’s ability to sell it.

Rear Adm. Habibollah Sayyari, Iran’s naval commander, said in remarks carried by an official Iranian new site that “closing the Strait of Hormuz is very easy for Iranian naval forces.” Admiral Sayyari, whose forces were in the midst of ambitious war game exercises in waters near the Strait of Hormuz, was the second top Iranian official to make such a threat in 24 hours.

A spokeswoman for the United States Navy’s Fifth Fleet, which is based in Bahrain and patrols the strait, responded: “Anyone who threatens to disrupt freedom of navigation in an international strait is clearly outside the community of nations; any disruption will not be tolerated.”

The Strait of Hormuz, with two mile-wide channels for commercial shipping, connects the Gulf of Oman to the Persian Gulf, the principal loading point for oil shipped from Saudi Arabia, the world’s largest oil exporter.

A Saudi official told The Associated Press that the other oil-producing gulf nations are prepared to fill any shortfall in Iranian oil supply. But just as unrest in Libya shook the oil market in 2011, concern over Iran could influence prices in 2012.

Markets seemed to shrug off Iran’s threats. The price of the benchmark crude oil contract on the New York Mercantile Exchange fell for the first time in more than week, settling at $99.36 on Wednesday, down $1.98.

But several investment banks predict that the price of the benchmark crude on the New York exchange will average about $110 next year while Brent crude oil, which analysts say affects what most of the world pays for oil, will average about $115 a barrel.

“The possibility that there might be a disruption in oil supply at some time in 2012 as Iran retaliates has, I think, permanently embedded a $10 to $20 premium in the price of oil,” said Bernard Baumohl, chief global economist at the Economic Outlook Group. “The danger is if oil starts to move toward $130 a barrel, or even higher, depending on whether that confrontation will escalate. Then you’re really talking about the prospect of the U.S. tipping over into recession in addition to Europe, and that the whole global economy will be facing an economic downturn.”

Analysts say that members of the Organization of the Petroleum Exporting Countries, including Iran and Saudi Arabia, have an incentive to keep prices near $100 a barrel. Many governments in the Middle East and North Africa spent heavily on social assistance programs in response to the unrest of the Arab Spring and are depending on higher prices to help meet their budgets.

Seth Feaster and Elisabeth Bumiller contributed reporting.

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