Traders monitor oil prices, Tuesday, Feb. 21, 2012 at the New York Mercantile Exchange. Oil prices remained above $104 Tuesday but retreated from recent highs after European leaders agreed to lend Greece euro130 billion ($172 billion) to avoid a debt default.(AP Photo/Mark Lennihan)
Traders monitor oil prices, Tuesday, Feb. 21, 2012 at the New York Mercantile Exchange. Oil prices remained above $104 Tuesday but retreated from recent highs after European leaders agreed to lend Greece euro130 billion ($172 billion) to avoid a debt default.(AP Photo/Mark Lennihan)
Traders monitor oil prices, Tuesday, Feb. 21, 2012 at the New York Mercantile Exchange. Oil prices remained above $104 Tuesday but retreated from recent highs after European leaders agreed to lend Greece euro130 billion ($172 billion) to avoid a debt default.(AP Photo/Mark Lennihan)
Gasoline prices are displayed as a man rides his bicycle past them at a station Tuesday, Feb. 21, 2012, in Oakland, Calif. U.S. retail gasoline prices rose less than a penny Monday to a national average of $3.57 per gallon, according to AAA, Wright Express and Oil Price Information Service. A gallon of regular is 19 cents higher than it was a month ago and 40 cents more than a year ago.(AP Photo/Ben Margot)
NEW YORK (AP) ? Oil prices have climbed to the highest level since May on concerns that Iran will cut off more oil to Europe.
Benchmark crude rose by $2.65, or 2.6 percent, to end the day at $106.25 per barrel on the New York Mercantile Exchange. That's the highest price for oil since May 4.
Brent crude, used to price foreign oil varieties imported by U.S. refineries, rose by $1.61 to finish at $121.66 in London.
"People are just scared about Iran," independent analyst and trader Stephen Schork said. "They're concerned about supply."
The rise in gasoline is expected to be a drag on the recovering U.S. economy
The surge could make gasoline and other fuels more expensive if prices stay high. At a national average of $3.57 per gallon, U.S. pump prices already are the highest ever for this time of year, and analysts say they may reach a record $4.25 per gallon ($1.12 a liter) this spring.
The rise in oil follows an announcement by Iran over the weekend that it will stop selling oil to Britain and France in retaliation for a planned European oil embargo this summer. The move was mainly symbolic ? Britain and France import almost no oil from Iran ? but it raised concerns that Iran could take the same hard line with other European nations that use more Iranian crude.
The European Union buys about 18 percent of Iran's oil exports, though most of that comes from sales to just two countries: Italy and Spain.
Iran's Foreign Ministry also said Tuesday that visiting inspectors won't be able to inspect the country's nuclear facilities. An International Atomic Energy Agency team arrived in Tehran this week hoping to monitor Iran's nuclear program. Instead it will only hold talks with officials about ways to cooperate in the future.
"Some were hopeful that we were stepping back from the brink" of a protracted conflict in the region, PFGBest analyst Phil Flynn said. "But if they're not going to be able to inspect, then what's the point of being there?"
Iran has been embroiled in a standoff with the U.S. and Europe for several months over its nuclear program. Western nations fear Iran is building a nuclear weapon and have been trying to put financial pressure on the country to abandon the program.
The European Union has frozen assets of Iran's central bank, and it plans to stop buying Iranian oil after July. If Iran stops selling oil to some European countries ahead of the embargo, refineries will have to find alternative sources of oil sooner than planned.
A scramble for alternate oil sources would temporarily boost oil demand and prices, analysts said.
"We have every reason to expect to see prices advance on this latest Iranian news," Cameron Hanover analyst Peter Beutel said.
On Tuesday oil prices also were supported by Europe's approval of a $170 billion lifeline to Greece. The decision, which includes an agreement by Greece to cut spending, raised hopes that Europe will contain a banking crisis that has hurt its economy and weakened energy demand.
So far this year, benchmark oil has risen 7 percent.
In other energy trading, heating oil rose by 5 cents to end at $3.24 per gallon and gasoline futures rose by 5 cents to finish at $3.07 per gallon. Natural gas futures fell by 6 cents to end at $2.63 per 1,000 cubic feet.
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