The price of oil climbed to its highest level in more than two years on Wednesday as the U.S. edged closer to taking action against Syria for the alleged use of chemical weapons.
Benchmark oil for October delivery rose $1.09, or 1 percent, to $110.10 a barrel on the New York Mercantile Exchange. That's its highest closing price since May 3, 2011.
Earlier, oil climbed as high as $112.24.
Oil has surged 27 percent since touching a low for the year of $86.68 on April 17. Political unrest in the Middle East and the threat of U.S. intervention in Syria's civil war have been big factors behind the price increase. Neither country is a major oil exporter, but traders are concerned that the violence could spread to more important oil-exporting countries or disrupt major oil transport routes.
"The market is very concerned that if the US did carry out a missile strike or some kind of military action that it could pull in Iraq and other neighboring states in the Middle East," said Dan Heckman, a national investment consultant, who specializes in commodities, at US Bank Wealth Management.
THE LATEST DEVELOPMENTS
The U.N.'s special envoy to Syria, Lakhdar Brahimi, said Wednesday that there was evidence that some kind of chemical "substance" had been used in an attack that may have killed more than 1,000 people near Damascus.
Brahimi also said that any strike against Syria needed to gain approval from the 15-member U.N. Security Council.
OTHER FACTORS LIFTING OIL
Global supply worries are also boosting prices.
Libya has cut exports by at least 1 million barrels a day due to production outages and labor conflicts at shipping ports. That is a more likely driver of the recent surge, according to analysts at JBC Energy in Vienna.
When Libya's oil production stopped completely during the revolution in 2011, oil rose by $20 a barrel over the span of two weeks.
While reports of ample global supplies were recently the norm, JBC Energy said current developments — such as low spare capacity in Saudi Arabia, stockpiles falling in the U.S., disappointing supply developments around the world and signs of an improving global economy — pointed to tighter markets.
IMPACT AT THE PUMP
In the U.S. the average price for gasoline is $3.55 a gallon, according to the AAA's Daily Fuel Gauge report. Because of ample supplies, the price of gasoline has remained fairly steady during August even with the recent surge in oil. With the upcoming end of summer driving season, demand should ease, helping keep prices down.
But US Bank's Heckman cautions that high oil could have eventually have an impact.
"The longer you have this sustained high level ... ultimately that will transfer to gasoline prices."
IF THE US DOES STRIKE SYRIA?
Many analysts believe that the move in oil prices is most pronounced in the buildup to any attack. Once the U.S. has carried out the strike, traders will turn their focus to issues such as global oil supply.
In past Middle East conflicts, oil prices rose in anticipation of action, then fell quickly when the conflict actually started.
In the run-up to the Gulf War, oil prices more than doubled from under $20 in July of 1990 to $40 a barrel in October of that year. But on the day that the U.S. started bombing — January 17, 1991 —oil fell 33 percent, down to $21.
A similar pattern emerged as the Iraq War drew near in 2003. Prices rose from $31 a barrel at the beginning of the year to nearly $40 in March in the days before the invasion began. But by the end of March, they had fallen to $29 a barrel.
Pamela Sampson in Bangkok, John Heilprin in Geneva and Jon Fahey in New York contributed to this report.