NEW YORK (AP) -- Oil prices rose Wednesday on the expectation that world supplies could be squeezed further because of ongoing tensions with Iran.
Iran, the world's third-biggest oil exporter, has been in a standoff with the West over its nuclear program. After blocking United Nations inspectors late Tuesday, Iran repeated warnings that it would act against countries that pose a threat.
Iran has cut off oil shipments to Britain and France, although those countries used very little Iranian oil. But it may also halt supplies to other European nations that rely more heavily on its crude. European countries buy about 18 percent of Iran's oil exports.
The United Nations suspects Iran of building a nuclear weapon. Iran denies that, but the U.S. and the European Union insist that Iran prove it. They have frozen assets of Iran's central bank, and the EU will implement an oil embargo in August to force Iran to open its nuclear program for inspection.
PFGBest analyst Phil Flynn said traders snapped up oil contracts Wednesday, expecting no quick agreement with Iran. Refineries, he said, want to lock in supplies now.
"It's hard to see how we're going to get a resolution over this without some sort of confrontation," Flynn said. "So you're seeing some panic buying now."
Brent crude, a benchmark for foreign oil imported by U.S. refineries to make gasoline, added $1.24 to end the day at $122.90 per barrel in London. The U.S. benchmark, West Texas Intermediate crude, which has ample supplies in the Midwest, rose slightly, adding just 3 cents to finish at $106.28 per barrel in New York.
Oil prices have soared this year as tensions grew between Iran and the West. Brent crude has jumped 14 percent since the start of 2012 and WTI has increased 7 percent.
Concerns about Iran have overshadowed worries about declining energy demand in Europe and a manufacturing slowdown in China.
HSBC said Wednesday that China's manufacturing sector isn't expanding. The February reading of HSBC's China manufacturing index suggested that factory activity isn't growing. China's economy is expected to drive world oil demand to new heights this year, and investors took the weak reading as a sign that demand may not increase as much as expected.
Traders also said they were concerned that the latest Greek bailout isn't enough to revive that nation's economy. Analysts said a $172 billion rescue package may not be enough to save Greece from defaulting on a mountain of debt. Massive budget cuts could keep the country stuck in recession, and the Greek bailout doesn't address debt problems in neighboring countries.
Meanwhile, U.S. retail gasoline prices rose nearly a penny to a national average of $3.58 per gallon, according to AAA, Wright Express and Oil Price Information Service. Gasoline is at the highest price ever for this time of year, and analysts say the national average could hit $4.25 per gallon by late April.
U.S. drivers are buying less gasoline, in part, because of high pump prices. In its weekly survey of retail gas purchases around the country, MasterCard SpendingPulse found demand was down last week by 6.4 percent from a year ago.
In other energy trading, heating oil rose by 3 cents to end at $3.27 per gallon. Gasoline futures rose by 2 cents to finish at $3.09 per gallon. Natural gas futures rose by 2 cents to end at $2.64 per 1,000 cubic feet.
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